INTELLIQUEST INFORMATION GROUP INC, 10-K, 1999-03-31

INTELLIQUEST INFORMATION GROUP INC
10-K, 1999-03-31
MANAGEMENT CONSULTING SERVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the Fiscal Year Ended December 31, 1998
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from to

Commission file number: 0-27680

INTELLIQUEST INFORMATION GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware 74-2775377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

1250 Capital of Texas Highway 78746
Austin, Texas (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

Registrant's telephone number, including area code: (512) 329-0808
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Common Stock, $.0001 Par Value NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. ( )

The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of the close of business on February 28, 1999 was
approximately $85.5 million. Shares of Common Stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may under certain
circumstances be deemed to be affiliates. This determination of executive
officer or affiliate status is not necessarily a conclusive determination for
other purposes.

The number of shares outstanding of the Registrant's Common Stock as of
February 28, 1999 was 7,861,218.

DOCUMENTS INCORPORATED BY REFERENCE

(1) Proxy Statement for the Annual Meeting of Stockholders of Registrant to be
held on May 11, 1999. Certain information therein is incorporated by
reference into Part III hereof.

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TABLE OF CONTENTS
INTELLIQUEST INFORMATION GROUP, INC.
FORM 10-K

<TABLE>
<CAPTION>
PAGE
PART I
<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties.. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 12
Executive Officers of the Registrant.. . . . . . . . . . . . . 12

PART II

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.. . . . . . . . . . . . . . . . . . . . 13
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 15
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.. . . . . . . . . . . . 54

PART III

Item 10. Directors and Executive Officers of the Registrant.. . . . . . 54
Item 11. Executive Compensation.. . . . . . . . . . . . . . . . . . . . 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . 54
Item 13. Certain Relationships and Related Transactions.. . . . . . . . 54

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>

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ITEM 1. BUSINESS

THE FOLLOWING BUSINESS SECTION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO, THE COMPANY'S EXPECTATIONS REGARDING ITS FUTURE FINANCIAL
CONDITION AND OPERATING RESULTS, PRODUCT DEVELOPMENT, BUSINESS AND GROWTH
STRATEGY, MARKET CONDITIONS AND COMPETITIVE ENVIRONMENT. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO RISKS
ASSOCIATED WITH LIMITED EXPERIENCE IN THE DATABASE MARKETING INDUSTRY; RAPID
TECHNOLOGICAL CHANGE AND DEMAND FOR NEW PRODUCTS; AND DEPENDENCY ON KEY
PERSONNEL AS FURTHER DISCUSSED UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "RISK FACTORS" AND ELSEWHERE IN
THIS FORM 10-K.

IntelliQuest Information Group, Inc. ("IntelliQuest" or the "Company")
is a leading provider of information solutions and services which help
technology companies and Internet marketers improve their marketing
performance. The Company has two primary lines of business: marketing
research ("Research Division") and database marketing ("IQ2.net"). The
Research Division business provides services supporting clients' needs to
understand and improve the strategic position of their brands, products,
media, channels and use of the Internet. IQ2.net provides services which
address clients' tactical needs for reliable detailed data reflecting
customers' and prospects' demographics, technology product use, lifestyles,
interests, and their Internet, mail and telephone contact information.

Since its founding in 1985, IntelliQuest has focused on meeting the
specialized marketing information needs of companies whose businesses and
clients are driven by technology. The Company supported over 300 clients in
1998, primarily serving four market sectors:

- - Technology product manufacturers such as 3Com, Compaq Computer,
Hewlett-Packard, IBM, Intel and Microsoft.

- - Media companies that reach technology buyers, such as Dow Jones, Gannett,
IDG, Time Warner and Ziff-Davis.

- - Communications services providers such as AT&T, Bell South, British
Telecom, ICG / Netcom, MCI, Sprint and US West.

- - Internet marketers, including pure Internet companies such as America
Online, Garden.com, Infoseek and Yahoo!, as well as established companies
who are pursuing strategic business advantage through the Internet,
including companies such as Barnes & Noble, Dell Computer, Mattel and Visa
USA.

The Company believes that its ability to consistently provide the
highest-quality information and analysis regarding technology-driven markets at
the strategic and tactical levels differentiates it from its competitors and
enhances the Company's ability to capitalize on investments in Internet
marketing and the continued strong growth in the technology manufacturing
sector.

The Company's Research Division supplies timely, objective, accurate and
cost-effective information to clients about technology and Internet markets,
customers and products through subscription services and proprietary custom
projects. The Company uses proprietary techniques, databases and technology to
help companies track product performance and customer satisfaction, measure
advertising effectiveness, assess brand strength and competitive position,
develop media plans, determine price sensitivity, and evaluate new products,
markets or other business opportunities.

In May 1996, the Company merged with Pipeline Communications, Inc.
("Pipeline"), a leading provider of electronic customer registration and
marketing services for a number of leading computer hardware, software and
peripheral companies. The Company's merger with Pipeline Communications, Inc.
enabled the Company to expand its offering of electronic customer registration
products.

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In February 1997, the Company merged with Zona Research, Inc. ("Zona
Research"), a leading provider of subscription-based advisory services, reports
and conferences that monitor the Internet and intranet markets. Zona Research
uses a limited amount of quantitative research to support forward-looking
projections and analysis designed to help Internet-related vendor companies
successfully develop marketing strategies.

In December 1997, the Company entered into an exclusive licensing agreement
with First Data Solutions ("First Data"), a premier provider of consumer,
lifestyle and public record information, to market and sell First Data's popular
database products to the high-tech, telecommunications, cable and utility
industries. In February 1998, the Company formed a dedicated business unit to
focus on database marketing. Initially named IntelliQuest Marketing Information
Solutions (IQ MKIS), the business unit was created to leverage the Company's
assets in product registration services and its rights under the First Data
licensing agreement to help clients enhance their sales and marketing
effectiveness in customer acquisition, retention, cross-selling and up-selling.
Dr. Charles Stryker was named as president of IQ MKIS, bringing the guidance of
an internationally-recognized authority on database marketing to the Company's
efforts. In February 1999, the Company relaunched the Database Marketing
business with a new name and a new Web site "IQ2.net" to reflect the importance
and value of its database marketing assets to clients seeking to integrate
physical world and virtual online marketing.

IQ2.net creates and sells databases of detailed information about specific
technology buyers and Internet users. Databases are created for clients through
the Company's outsource product registration services which capture customer
information for technology product manufacturers and software publishers.
Registration data allows clients to identify and communicate with customers, who
have purchased their products through indirect sales channels, enhancing their
ability to support, cross-sell or up-sell those customers. The Company's
outsource registration business also provides the primary input to the Company's
own proprietary marketing database of known technology-using and
technology-buying households - the "High-Tech Household Database." The Company
provides an X.25 network that allows electronic customer registration from over
100 countries and 500 cities worldwide. Clients purchase licensing rights to use
lists generated from this database to identify prospective customers and to
communicate with them over the Internet or through traditional direct mail or
telephone techniques.

The Company moved aggressively into Internet-based marketing services
during 1998. IQ2.net offerings were strengthened through alliances with
CoolSavings.com and with 24/7 Media, enabling clients to leverage
state-of-the-art Internet direct marketing techniques into their total direct
marketing programs. The Company announced an alliance with CoolSavings.com in
September 1998 to provide product registration clients with the ability to
provide real-time, Internet-delivered coupons to customers when they register.
This arrangement provides clients with the means to cross-sell and up-sell
additional products to their customers without compromising the integrity of
their current channel relationships. The alliance with 24/7 Media, Inc. is
creating an Internet advertising targeting service leveraging data in the
Company's proprietary High-Tech Household Database. The new service will provide
IntelliQuest's clients with the ability to deliver personalized, one-to-one
marketing messages to their registered customers over the Web. These affinity
marketing programs strategically reposition registration from a client cost
center to a client marketing channel and revenue opportunity. In addition, these
programs add value to the Company's High-Tech Household Database, enabling
clients for the first time to identify Internet users and their demographics
within a customer or prospect base. In late 1998 the Company restructured the
First Data license agreement to enable the Company to gain maximum leverage from
the assets, and expand the opportunity beyond IntelliQuest's historical client
base.

The Internet has also become an integral part of the Research Division.
The Company launched multiple new Research Division products and services to
meet the increasing demand for Internet marketing information, including:
Ebranding-TM-, a syndicated Research product measuring brand perceptions of
ecommerce sites; Technology Panel, which provides Research clients with fast
access to Internet-enabled survey respondents; and Zona Consulting, providing
custom consulting for clients considering ecommerce strategies, in creating
preference and other positive perceptions among their target audience. Zona
Research continued to play a major role in

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shaping opinions about the industry and the medium, and began creating
offerings to move their client base to include mainstream companies seeking
to leverage the Internet as a marketing channel. The Internet was used to
gain efficiency and effectiveness in Research Division operations, with over
40% of all custom projects fielded over the Internet in 1998, providing
clients with faster response times while improving cost effectiveness. The
Company deployed its proprietary online survey tool, SurveyNet, in 1998,
allowing the rapid creation and deployment of many of those surveys conducted
online. And development is well under way on KnowledgeStore, a suite of
tools for online delivery of syndicated marketing research data.

The Company's revenue stream is derived from a mix of continuous services,
one-time projects, data-licensing fees and conference fees. In 1998, 86.3% of
the Company's total revenues were generated from the sale of continuous
services.

PRODUCTS AND SERVICES

IntelliQuest offers information-based marketing products and services
through two lines of business: Research Division (marketed as IntelliQuest
Research and as Zona Research) and Database Marketing (marketed as IntelliQuest
Marketing Information Solutions "IQ MKIS" during 1998 and marketed as "IQ2.net"
beginning in February 1999).

RESEARCH DIVISION PRODUCTS & SERVICES

CUSTOM RESEARCH

The Company's Research Division provides custom proprietary market research
studies to technology companies and Internet marketers, offering full service
support for "strategic assessment", as well as "longitudinal tracking" of
marketing issues and performance. These studies are fielded through the
Company's data collection centers in Austin, Texas, and London, England, as well
as partner facilities around the world providing marketing data for technology
consumers in the United States, Canada, Mexico, Latin America, France, the U.K.,
Germany, Italy, Japan and other countries.

"Strategic assessment" projects meet clients' needs for quantification of
their customers' or prospective customers' needs, beliefs or perceptions to
support crucial marketing issues and decisions. These projects may address
issues such as market opportunity assessment, market segment analysis,
advertising testing, product or service offering concept tests, or pricing and
profitability assessments. Market opportunity assessment projects enable
clients to explore the potential and pitfalls of new products, channels or
services. Market segmentation studies assist clients in identifying segments
with varying needs, quantifying the sizes and potential economic opportunities
of the segments, describing the composition of each segment, analyzing each
segment's sources of product information and evaluating alternative marketing
communications messages. Profitability studies compare customers' perceptions
of price relative to other attributes, allowing the Company to create models of
pricing strategies for the client. IntelliQuest meets those various "strategic
assessment" needs by designing survey questionnaires, developing sampling plans
of survey respondents who fit the profile of the clients' target audience,
fielding the surveys (by telephone, mail, fax or online), compiling and
analyzing the results, and delivering tabulated data and executive summary
results to the client.

When clients are making high-impact decisions, the strategic studies may
require random recruitment of survey respondents. Alternatively, when research
data is urgently required for a decision or when client budgets are constrained,
respondents may be drawn from IntelliQuest's Technology Panel. The Technology
Panel is a pre-recruited sample of approximately 35,000 person's influential in
the purchase of technology goods and services who have agreed to participate in
ongoing research projects. Technology Panel participants are drawn from a
variety of corporate functional areas (such as senior management, MIS director
or departmental head), and are involved in the purchase of various types of
technology product categories, and also includes consumer high tech purchasers.

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"Longitudinal tracking" projects provide clients with proprietary
monitoring of their brand, advertising, products or customers. Proprietary
brand tracking studies help clients monitor customers' perceptions of their
brands in unique product or market segments, and may be combined with syndicated
tracking data as described below. Advertising tracking enables clients to
measure the return on advertising investments on an ongoing basis. Customized
product and customer tracking research enables clients to follow products and
customers through all phases of the product life cycle.

SYNDICATED RESEARCH

The Company's Research Division provides a variety of syndicated marketing
research services which address issues common to many competing vendors.
Syndicated research studies provide marketing research data to clients at a
fraction of the cost required to study such issues independently. Moreover, in
nearly all cases, the rigor of the methodology and quality of the syndicated
data are superior to standalone custom studies due to the larger pool of
financial support and opportunity for technique refinement over the life of the
study. The primary areas of Syndicated research the Company provides are media
tracking (CIMS-TM-), brand tracking (IntelliTrack IQ-TM- and Ebranding-TM-), and
Internet usage tracking (WWITS-TM-). These studies are fielded through the
Company's data collection centers in Austin, Texas, and London, England, as well
as partner facilities around the world providing marketing data for technology
consumers in the United States, Canada, Mexico, Latin America, France, the U.K.,
Germany, Italy, Japan and other countries.

"Brand tracking" services provide clients with an assessment of the status
of buyers' and prospects' perceptions of their brands and their competitors'
brands. This helps marketing executives assess the effectiveness of their
advertising and branding efforts, and the studies provide indicators of why
customers are, or are not, considering or purchasing their brand.

IntelliTrack IQ is a family of market and brand tracking studies delivered
monthly or quarterly. The studies are provided on an annual subscription basis
by product category and by geographic market. In 1998 the Company offered
sixteen product category modules; the geographic markets tracked include the
United States, Canada, Mexico, Brazil, the U.K., France, Germany, Italy and
Japan. To deliver these services, the Company completes over 80,000 interviews
per year with home and business purchase influencers of computer-related
equipment.

IntelliTrack IQ also offers proprietary omnibus and recontact services. The
omnibus service allows customers to add confidential questions to the
IntelliTrack survey, providing additional in-depth data customized to customers'
individual needs. Recontact studies allow customers direct access to original
respondents so that follow-up research can be conducted with specific target
groups. Both services provide a cost-effective alternative to stand-alone custom
research services.

Ebranding is a syndicated research service launched in 1998 to provide
marketing managers building online commerce sites with a means to measure their
competitive marketing effectiveness. The study measures brand awareness,
preference and conversion rates among current and future online shopping and
buyers of seven categories of consumer products; autos, books, clothing,
computers, music, software and travel. Online financial services will be added
in 1999. Unlike other IntelliQuest marketing research projects, Ebranding is
fielded and delivered completely over the Internet. In each semi-annual wave of
research, at least 10,000 respondents are randomly recruited over the Internet.
After the data is compiled and analyzed, it is delivered to clients through a
secure, password-protected Internet Web site.

The Computer Industry Media Study (CIMS), is an annually-fielded syndicated
study of the media

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readership and viewership habits of business and household technology
purchase influencers in the United States. The research provides technology
advertisers and the media companies that target technology buyers with
objective, comparable information about how to efficiently target advertising
at key buying groups. The study supports analysis down to sub-audiences for
specific product categories, including desktop PCs, notebook PCs,
workstations, microprocessors, printers, peripherals, applications software,
operating systems, LAN hardware/software, networking, Internet and intranet
products and services, and wide-area networking and communications products.
In addition to the advertising targeting information, the scope of the study
(over 8,500 completed business surveys and 5,000 home surveys) makes CIMS a
comprehensive annual benchmark of market trends in both buying patterns and
media behavior.

The Worldwide Internet Tracking Service (WWITS) is a quarterly tracking
study of Internet and online service usage in the United States. The research
was designed to provide the industry's most accurate and comprehensive
measurement of the size and growth of the Internet and OLS user population.
Additionally, the study monitors the online activities of Internet users,
including their brand preferences, ecommerce activity and satisfaction levels.
Specific brand categories tracked include online services, browsers and
navigation guides.

Zona Research provides subscription-based advisory services and reports
that focus on trends in the Internet and intranet markets. Zona Research
combines quantitative research with industry expertise and opinion to construct
forward-looking projections and analysis to help Internet-related vendor
companies and those looking to leverage the Internet as a marketing tool to
successfully develop their marketing strategies.

CONFERENCES

The Company hosts conferences which produce revenue from admission fees and
generate client good will and contacts. The IntelliQuest Brand Tech Forum
(co-hosted with The Wall Street Journal), is devoted to presentations on
creating, managing and measuring technology brands. The IntelliQuest Marketing
Research Tech Forum focuses on state-of-the-art research methods for technology
markets. The Zonathon conference explores topics such as commerce on the
Internet, security issues, collaborative computing and how organizations
implement Internet/intranet technologies to meet enterprise needs.

CONSULTING SERVICES

The Company provides custom consulting services in conjunction with other
Research Division offerings. These consulting services help clients to better
analyze, understand and take action based on data generated by the Research
Division services.

IQ2.NET PRODUCTS & SERVICES

CUSTOMER REGISTRATION SERVICES

The Company provides outsource product registration services for
technology manufacturers and software publishers. Registration data allows
clients to identify and communicate with customers which have purchased their
products, enhancing their ability to support, cross-sell or up-sell to them. The
Company's proprietary software presents a computer-based questionnaire to the
customer, with branching logic and multimedia capabilities such as the ability
to incorporate voice and high-resolution graphics. Computer systems
manufacturers pre-load the Company's software on their products so that the
registration questionnaire automatically appears when the product is first used.
Peripheral equipment manufacturers and software publishers also incorporate the
registration software into the "install" software that customers use when they
first set up the product. The Company's full-service outsource registration
solution includes support for electronic and non-electronic responses --
Internet, modem,

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mail, and fax. The Company can process online calls in over 100 countries
and 500 cities through its X.25 network.

REGISTRATION AFFINITY MARKETING SERVICES

The Company provides Registration Affinity Services enabling other clients
to deliver marketing messages and present offers to end-users engaged in
registering through the Company's software and services. The marketing offers
are presented electronically to end-users during the registration process as an
incentive or "thank you" for voluntarily registering. When end-users accept a
marketing offer, commissions are paid to IntelliQuest and/or the manufacturer of
the product being registered. This creates a revenue stream for both the
Company and its Registration clients.

DATABASE LIST LICENSING

The Company has contractual rights to use certain data collected in the
Registration process. That Registration data serves as the primary input to a
proprietary marketing database of known technology-using and technology-buying
households, marketed as the "High-Tech Household Database." The Database is
enriched by matching the Registration data with information from other
commercially-available data sources. Clients purchase licensing rights to use
this marketing database to identify prospective customers and to communicate
with them over the Internet or through traditional direct mail or telephone
techniques.

DIRECT MARKETING SERVICES

The Company offers information and consulting services to provide
actionable data for clients to achieve more effective customer acquisition,
retention programs, cross-selling and upselling. These services are marketed
under the IntelliCIS family name. The IntelliCIS Enhance service appends
specific domestic consumer demographic and lifestyle information to customer
data and provides data cleansing and processing services. The IntelliCIS
Insight service provides consulting and training in database marketing best
practices implementation and the MkIS User Forum, an organization designed to
enhance the professional development of the attendees through the exchange of
ideas and experience in the implementation of database marketing solutions.

CLIENTS

During 1998, the Company served over 300 client companies, including
technology manufacturers such as: 3Com, 3M, AT&T, Compaq Computer, Dell
Computer, Hewlett-Packard, IBM, Intel, Microsoft, Netscape, Novell, Symantec,
Texas Instruments, and Toshiba; publishers that market to technology
advertisers, including Dow Jones, Gannett, Time Warner and Ziff-Davis;
communications services providers, including GTE, MCI, Sprint and US West; and
Internet marketers including Netscape, Yahoo!, Barnes&Noble.com, Garden.com and
CNET. International revenues from the Research Division and IQ2.net were $5.8
million and $1.6 million in 1998, respectively, or approximately 22.1% and 8.5%
of total revenues, respectively.

The Company's two largest customers, Sprint and Hewlett-Packard, accounted
for 13.1% and 12.1%, respectively, of 1998 revenues. No other customer accounted
for 10% or more of revenues in 1998. Substantially all of the Company's
subscriptions and customer contracts are renewable annually at the option of the
Company's customers, although no obligation to renew exists and a customer
generally has no minimum purchase commitments thereunder. In addition, there is
consolidation of companies in the technology industries served by the Company, a

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trend that the Company believes will continue. Consolidation among the
Company's top customers could adversely affect customer budgets for the
Company's products and services. No assurances can be given that the Company
will maintain its existing customer base or that it will be able to attract
new customers.

SALES AND MARKETING

IntelliQuest has historically generated most of its new business through
customer referrals supplemented by its own sales and marketing efforts. The
Company has historically maintained a small, focused direct sales force to
market the Company's products and services to potential new customers. An
initiative launched during the second half of 1997 to create a centralized
formal sales force and management structure was found, by the first quarter of
1998 to be ineffective. In April 1998 as part of a restructuring, the Company
formed discrete autonomous business units, Research Division and IQ2.net. Each
business unit was given responsibility for managing its own sales force, and the
centralized salesforce was disbanded.

The Company also trains and encourages all of its employees to monitor the
information needs of existing customers in order to provide additional products
and services. In addition, the Company's senior management actively participates
in developing and maintaining customer relationships.

The Company's primary marketing event is the annual IntelliQuest Brand Tech
Forum (the "Forum"), attended by nearly 400 of the technology industry's
marketing professionals. The conference features outside speakers on a variety
of topics related to branding and technology marketing, and provides a public
showcase for the Company's products and services. The 1998 Forum was co-hosted
by the Wall Street Journal and sponsored by Ziff-Davis and Conde Nast. In
addition, the Company hosts user conferences for subscribers of certain
information services. These conferences provide customer feedback on potential
product improvements and service enhancements. The Company also conducts
conferences on specific topics for technology marketers such as pricing
technology products, aftermarketing and product registration, database
marketing, evaluating emerging technologies and Internet and intranet trends.

Publishers frequently contract with IntelliQuest to conduct research that
is published or distributed to technology companies. The Company also provides
data for editorial use, including providing USA Today with biweekly survey
information for the USA Today/IntelliQuest Website Evaluations (Webscore).

PRODUCT DEVELOPMENT AND TECHNOLOGY

The Company is actively developing new subscription-based information
products. The Company focuses its product development efforts in areas where
there is a demonstrated customer demand for consistent worldwide market research
but where quality research is cost prohibitive unless shared among several
customers.

The Company is also investing in enabling technologies that increase the
quality and efficiency of the data collection process. This includes
continued enhancements to SurveyNet.Com, the Company's proprietary web site
and automated web-based survey technology. SurveyNet is a rapid research
development tool designed for non-technical users to conduct rapid marketing
research on the World Wide Web. SurveyNet v1.0 was released December 1998
and has been used for a number of production surveys

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throughout the end of 1998 and 1999.

The Company has also entered into a licensing agreement with Quantime
Limited for use of its Quancept web survey technology. The Company has extended
the Quancept web survey technology to provide support for a variety of
sophisticated survey requirements including respondent authentication and
multi-language support for a number of European and Asian languages.

Additionally, the Company has extended its use of Web-based technology to
field surveys via the Technology Panel, thereby improving data collection cost
and effectiveness, and further reducing turnaround time on panel studies.
Overall panel creation and membership administration has been streamlined with
the release of the Company's proprietary Panel Manager v1.0 application.
Further, the Company has also developed a new, exclusively
web-based Consumer Panel.

The Company is also developing tools to further automate the reporting and
communication of survey results via the Web. This includes additional
interactive features such as real-time reporting, query capabilities, and
electronic cross tabulation and data manipulation for client use.

The Company is continuing to develop new products and technologies for the
IQ2.net division, such as:

- the X.25 network, which can process online calls in over 100 countries
and 500 cities, and

- IntelliCIS, which provides customer, prospect and market research
information to technology manufacturers and service providers based on
worldwide customer registrations and in-house customer data.

During 1999, the Company began evaluating a new product to support the
transition of product registration from a cost center to a client marketing
channel and revenue opportunity. This technology will provide intelligent
targeted marketing, Web-based marketing, improved customer management
functionality, and aggregate marketing information. The Company anticipates
building a prototype and performing feasibility testing during 1999. Beta
testing is anticipated for late 1999. The product is targeted for a limited
release in early 2000, and a full-scale launch during 2000.

COMPETITION

The technology-focused market research industry is highly competitive.
The principal bases of competition in the Company's business are quality,
industry knowledge, data delivery, geographic coverage, cost-effectiveness
and customer service. The Company has traditionally competed directly with
relatively small local providers of survey-based technology-focused market
research. The Company also competes directly with third party providers of
customer registration software, such as Leader Technologies, Inc., as well as
vendors' own customer registration software. In its other product groups,
the Company competes indirectly with significant providers of (i)
analyst-based, technology-focused market research (such as Gartner Group,
Inc., META Group, Inc. and Forrester Research, Inc.); (ii) survey-based,
general market research (such as NFO Research, Inc., Market Facts, Inc., and
The NPD Group, Inc.); (iii) analyst-based, general business consulting, and
(iv) database marketing (such as Axciom Corporation and Metromail
Corporation). Most of these competitors have substantially greater
financial, information gathering and marketing resources than the Company and
could decide to increase their resource commitments to the Company's market.
Moreover, each of these companies currently competes indirectly, if not
directly, for funds available within aggregate industry-wide market research
budgets. There are few barriers to entry

<PAGE>

into the Company's market, and the Company expects increased competition in
one or more market segments addressed by the Company. Such competition could
adversely affect the Company's operating results through pricing pressure,
required increased marketing expenditures and loss of market share, among
other factors. There can be no assurance that the Company will continue to
compete successfully against existing or new competitors. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Risk Factors - We face significant competition in the market research
industry."

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

The Company's success is in part dependent upon its proprietary software
technology, research methods, data analysis techniques, and internal systems
and procedures that it has developed specifically to serve customers in the
technology industry. The Company has no patents; consequently, it relies on a
combination of copyright, trademark and trade secret laws and employee and
third-party non-disclosure agreements to protect its proprietary systems,
software and procedures. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that third parties will not independently
develop functionally equivalent or superior systems, software or procedures.
The Company believes that its systems, software and procedures and other
proprietary rights do not infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims against the Company in the future or that any such claims
will not require the Company to enter into materially adverse license
arrangements or result in protracted and costly litigation, regardless of the
merits of such claims.

EMPLOYEES

As of December 31, 1998, IntelliQuest employed a total of 278 persons on a
full-time basis, consisting of:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Research
Division IQ2.net Corporate Total
-------- ------- --------- -----
<S> <C> <C> <C> <C>
Research and other technical 80 42 - 122
Sales and marketing 16 12 - 28
Operations staff 79 18 31 128
-------- ------- --------- -----
Total 175 72 31 278
- ------------------------------------------------------------------------------
</TABLE>

The Company also employed part-time individuals in its data collection
operations, representing approximately 195 full-time equivalent employees.
None of the Company's employees is represented by a collective bargaining
agreement. The Company considers its relationship with its employees to be
good.

The Company has adopted a Privacy Policy that includes the following:
IntelliQuest is committed to responsible management of consumer information and
abides by rules, both ethical and legal, with respect to the use of consumer
information. We adhere to industry guidelines, and continually monitor and
enhance how we manage the use and security of consumer information...

We support the self-regulatory efforts of the direct marketing industry and
believe such actions are the best way to protect the privacy of the consumer. We
support legislation and regulatory efforts that introduce fair, workable
guidelines to protect the privacy of consumers. We will work to ensure that any
such guidelines are consistent with and complement established self-regulatory
measures, and that they allow the consumer to continue receiving the benefits
that sophisticated marketing techniques can provide...

In our general business practice, IntelliQuest does not disclose the
identity of its registration consumers.

<PAGE>

We append our technographic information to existing third party consumer
databases already available in the marketplace. IQ2.net acquires its data
about technology usage using our proprietary, secure private network and
software.

IntelliQuest pledges to make every effort to determine the source of any
data errors brought to our attention. If the error originates with us, we
will correct it. If the error originates with a third party, we will
immediately notify the provider of that data.

We require a commitment from our clients that any data sent to us has
been legally and ethically obtained and that in the use of any data received
from us, our clients will comply with data protection laws and applicable
industry policies. Our contracts with third-party information providers
contain a commitment that the data provided to us has been legally obtained
for the uses described above.

If we determine that a client or an information provider is not in
compliance with these commitments, we will terminate our relationship with
them.

ITEM 2. PROPERTIES

The Company's headquarters are located in approximately 38,419 square
feet of office space in Austin, Texas. These facilities accommodate
corporate administration, research and analysis, marketing, sales and
customer support. The lease on this facility expires in 2002. The Company
also leases additional office space in Austin, Texas; Atlanta, Georgia;
Redwood City and Carlsbad, California; New York, New York; Naperville,
Illinois; Lenexa, Kansas, and London, England to support its research and
analysis. The Company believes that its existing facilities are adequate for
its current needs and that additional facilities can be leased to meet future
needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material litigation and is not aware
of any pending or threatened litigation that could have a material adverse
effect upon the Company's business, operating results or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Registrant did not submit any matters to a vote of its security
holders during the fourth quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Peter Zandan .................. 46 Chairman
Brian Sharples ................ 38 President, Chief Executive Officer and
Director
Francis S. (Kit) Webster III .. 53 Chief Financial Officer
Ed Frazier .................... 52 Chief Operating Officer
Charles W. Stryker ............ 51 President of IQ2.net and Zona/Consulting
Marianne Grogan ............... 46 President of Research Division
</TABLE>

<PAGE>

PETER ZANDAN founded the Company and has been Chairman and Chief
Executive Officer from 1985 to 1997, turning over the Chief Executive Officer
position to Brian Sharples in 1997. Prior to founding IntelliQuest, he was an
industry consultant and lectured at the University of Texas at Austin from
1985 to 1986.

BRIAN SHARPLES joined IntelliQuest as Senior Vice President in 1990, was
named President in 1991, director in 1992, and Chief Executive Officer in
1997. Prior to joining IntelliQuest, he was a consultant in the high
technology practice of Bain & Company, Inc. and Chief Executive Officer of
Practical Productions, Inc., an event-based automotive distribution business.

FRANCIS S. (KIT) WEBSTER III joined IntelliQuest in 1999 as its Chief
Financial Officer. From 1997 to 1998, Mr. Webster was Chief Financial Officer
of Ross Technologies, a publicly traded microprocessor designer, manufacturer
and marketer. He was President of Nirvana Systems, Inc. a PC-based
securities analysis software developer in Austin, from 1995 to 1997. Prior
to joining Nirvana Systems, Mr. Webster served as President and Chief
Operating Officer of U.S. Medical Products, Inc., an Austin-based
manufacturer and distributor of orthopedic implants from 1992 to 1994, and
from 1984 to 1994 as Senior Vice President and Chief Financial Officer of the
Continuum Company, Inc., an Austin-based provider of software and services
to the insurance industry. Mr. Webster is a Certified Public Accountant.

ED FRAZIER joined IntelliQuest in 1998 as its Chief Operating Officer.
From 1995 to 1997, Mr. Frazier was Senior Vice President and Chief
Information Officer for Neodata, a company that services the direct marketing
industry by providing subscription fulfillment, database marketing, product
distribution and telephone customer services. From 1989 to 1995, he was
employed by TRW Information Systems and Services as Director of Operations
and Technical Services.

CHARLES W. STRYKER joined IntelliQuest in 1998 as President of the
Company's database division, IQ2.net and Zona Research. He served as a
Director from October 1997 to March 1998. From 1991 to 1997 he was founder
and President of MKIS User Forum and Information Technology Forum, companies
providing marketing information consulting and seminar products to executives
and technology companies.

MARIANNE GROGAN joined IntelliQuest in 1994, heading the Media Research
division and Company's Marketing Department before being placed in charge of
the Syndicated Products Division as Senior Vice-President. In 1998 she was
named President of the Research Division. From 1982 to 1992, Ms. Grogan was
president of Leading National Advertisers ("LNA"), the largest provider of
consumer magazine advertising expenditure information to publishers, agencies
and advertisers. In 1992, Ms. Grogan was named executive vice president of
Competitive Media Reporting, a joint venture between LNA and BAR.

<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock trades on the NASDAQ National Market under
the symbol IQST. The following table sets forth, for the fiscal year periods
indicated, the high and low sale prices of the Common Stock as reported by
NASDAQ.

<TABLE>
<CAPTION>
1998 High Low
- ---- ---- ----
<S> <C> <C>
First Quarter................................... $14.25 $6.75
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
Second Quarter.................................. 12.63 9.38
Third Quarter................................... 10.31 7.00
Fourth Quarter.................................. 8.63 4.13
</TABLE>

On February 28, 1999, there were approximately 47 holders of record of
the Company's Common Stock; the approximate number of beneficial shareholders
was 1,100.

The Company has not paid any cash dividends on its Common Stock and
currently intends to retain any future earnings for use in its business.
Accordingly, the Company does not anticipate that any cash dividends will be
declared or paid on the Common Stock in the foreseeable future.

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the consolidated financial statements, the notes
thereto and other financial information included elsewhere in the Form 10-K.

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1994 1995 1996 1997 1998
-------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous services $10,921 $16,782 $23,719 $31,778 $39,440
Other services 3,647 2,930 4,648 4,765 6,259
-------- --------- ---------- --------- ---------
Total revenues 14,568 19,712 28,367 36,543 45,699
-------- --------- ---------- --------- ---------
Operating expenses:
Cost of revenues 8,635 10,253 13,949 19,703 24,604
Sales, general and administrative 4,404 6,031 7,738 12,214 20,325
Product development 1,545 1,979 3,644 2,796 4,272
Depreciation and amortization 275 328 701 1,032 1,326
-------- --------- ---------- --------- ---------
Total operating expenses 14,859 18,591 26,032 35,745 50,527
-------- --------- ---------- --------- ---------
Operating (loss) income: (291) 1,121 2,335 798 (4,828)
Interest income and other 12 49 875 1,955 1,404
Interest expense (25) (31) (17) (9) (1)
-------- --------- ---------- --------- ---------
(Loss) income before income taxes (304) 1,139 3,193 2,744 (3,425)
-------- --------- ---------- --------- ---------
Provision for (benefit from) income taxes 2 593 984 583 (1,846)
-------- --------- ---------- --------- ---------
Net (loss) income $(306) $ 546 $ 2,209 $ 2,161 $(1,579)
-------- --------- ---------- --------- ---------
-------- --------- ---------- --------- ---------

Basic net (loss) income per share $ (0.16) $0.08 $0.32 $0.26 $ (0.19)
Diluted net (loss) income per share $ (0.16) $0.07 $0.30 $0.25 $ (0.19)
Basic weighted average share 3,550 3,550 6,667 8,372 8,311
Diluted weighted average share 3,550 3,972 7,317 8,519 8,311

December 31,
----------------------------------------------------------------
1994 1995 1996 1997 1998
-------- --------- ---------- --------- ---------
Consolidated Balance Sheet Data:
Working capital $ 1,167 $ 1,956 $54,817 $46,636 $41,653
Total assets 6,074 8,107 64,282 67,407 62,587
Common stockholders' (deficit) equity (1,892) (974) 57,202 59,870 53,541
</TABLE>

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, consolidated
statement of operations data expressed as a percentage of total revenues and the
percentage change in such items versus the prior comparable period:

Fiscal 1997 Fiscal 1998
over Fiscal over Fiscal
1996 1997 1998 1996 1997
-------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous services 83.6% 87.0% 86.3% 34.0% 24.1%
Other services 16.4% 13.0% 13.7% 2.5% 31.4%
-------- ---------- ---------
Total revenues 100.0% 100.0% 100.0% 28.8% 25.1%
-------- ---------- ---------
Operating expenses:
Cost of revenues 49.2% 53.9% 53.8% 41.3% 24.9%
Sales, general and administrative 27.3% 33.4% 44.5% 57.8% 66.4%
Product development 12.8% 7.7% 9.3% (23.3%) 52.8%
Depreciation and amortization 2.5% 2.8% 2.9% 47.2% 28.5%
-------- ---------- ---------
Total operating expenses 91.8% 97.8% 110.5% 37.3% 41.4%
-------- ---------- ---------
Operating income (loss): 8.2% 2.2% (10.5%) (65.8%) (705.0%)
Interest income and other 3.2% 5.3% 3.1% 123.4% (28.2%)
Interest expense (0.1%) (0.0%) (0.0%) (47.1%) (88.9%)
-------- ---------- ---------
Income (loss) before income taxes 11.3% 7.5% (7.4%) (14.1%) (224.8%)
-------- ---------- ---------
Provision for (benefit from) income taxes 3.5% 1.6% (4.0%) (40.8%) (416.6%)
-------- ---------- ---------
Net income (loss) 7.8% 5.9% (3.4%) (2.2%) (173.1%)
-------- ---------- ---------
-------- ---------- ---------

</TABLE>

The Company adopted segment reporting during 1998. Management views
operations as consisting of two segments: Research Division and IQ2.net. The
Research Division is comprised of renewable subscription based products and
proprietary research. IQ2.net encompasses database lists and services and
customer information products. The following tables set forth information for
these two segments.

<PAGE>

The following table sets forth, for the periods indicated, selected operations
data (in thousands):

Fiscal 1997 Fiscal 1998
over Fiscal over Fiscal
1996 1997 1998 1996 1997
------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESEARCH DIVISION
Revenues:
Continuous services $16,095 $19,844 $22,344 $ 3,749 $2,500
Other services 3,482 3,679 4,019 197 340
------- ------- ------- ----------- -----------
Total revenues 19,577 23,523 26,363 3,946 2,840
------- ------- ------- ----------- -----------
------- ------- ------- ----------- -----------

Cost of revenues 8,822 12,317 14,636 3,495 2,319
Product development 2,515 763 662 (1,752) (101)

</TABLE>

The following table sets forth, for the periods indicated, selected operations
data expressed as a percentage of total revenues and the percentage change in
such items versus the prior comparable period:

Cost of revenues 45.1% 52.4% 55.5% 39.6% 18.8%
Product development 12.8% 3.2% 2.5% (69.7%) (13.2%)

</TABLE>

<PAGE>

The following table sets forth, for the periods indicated, selected operations
data (in thousands):

<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
over Fiscal over Fiscal
1996 1997 1998 1996 1997
---- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C>
IQ2.NET
Revenues
Continuous services $ 7,624 $11,934 $17,096 $ 4,310 $ 5,162
Other services 1,166 636 2,240 (530) 1,604
------- ------- ------- ------- -------
Total revenues 8,790 12,570 19,336 3,780 6,766
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Cost of revenues 5,099 6,991 9,548 1,892 2,557
Product development 483 1,273 1,195 790 (78)
</TABLE>

<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
over Fiscal over Fiscal
1996 1997 1998 1996 1997
---- ---- ---- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous services 86.7% 94.9% 88.4% 56.5% 43.3%
Other services 13.3% 5.1% 11.6% (45.5%) 252.2%
------ ------ ------
Total revenues 100.0% 100.0% 100.0% 43.0% 53.8%
------ ------ ------
------ ------ ------

Cost of revenues 58.0% 55.6% 49.4% 37.1% 36.6%
Product development 5.5% 10.1% 6.2% 163.6% (6.1%)
</TABLE>

YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997

RESEARCH DIVISION

TOTAL REVENUES. Total revenues increased 12.1% in 1998 to $26.4 million
from $23.5 million in 1997. Revenues from continuous services increased 12.6%
to $22.3 million in 1998 from $19.8 million in 1997. Other revenues increased
9.2% to $4.0 million in 1998 from $3.7 million in 1997. Revenue growth is
primarily attributable to an increase in sales of panel services. Revenues
attributable to international market research decreased 11.2% to $5.0 million in
1998 from $5.7 million in 1997.

COST OF REVENUES. Cost of revenues increased 18.8% to $14.6 million in
1998 from $12.3 million in 1997. Cost of revenues increased as a percentage of
revenues to 55.5% in 1998 from 52.4% in 1997. This is primarily due to an
increase in cost for certain syndicated products.

PRODUCT DEVELOPMENT EXPENSES. Product development expenses are composed of
resources, primarily labor, dedicated to the development of new products and
proprietary processes. Product development expenses decreased to $660,000
during 1998 from $760,000 during 1997, a 13.2% decrease. Product development
costs decreased as a percent of revenue to 2.5% in 1998 from 3.2% in 1997. Due
to the fact that the Company competes in a market characterized by rapid and
continual technological change, it anticipates adding new products and services,
which address the increasingly sophisticated, rapidly changing and demanding
needs of its customers and their evolving market strategies.

<PAGE>

As a result of the uncertainty of these market demands, future product
development expenses may fluctuate.

IQ2.NET

TOTAL REVENUES. Total revenues increased 53.8% in 1998 to $19.3 million
from $12.6 million in 1997. Revenues from continuous services increased
43.3% to $17.1 million in 1998 from $11.9 million in 1997. Other revenues
increased 252.2% to $2.2 million in 1998 from $640,000 in 1997. Revenue
growth is primarily attributable to the addition of database marketing
products. This increase was partially offset by the anticipated
discontinuation of data medium sales in late 1997 as the market shifted to
more electronic solutions for customer registration. Revenues attributable
to international market research decreased 63.9% to $1.7 million in 1998 from
$4.7 million in 1997. This decrease in directly attributable to the
discontinuation of data medium sales in late 1997.

COST OF REVENUES. Cost of revenues increased 36.6% to $9.5 million in
1998 from $7.0 million in 1997. Cost of revenues decreased as a percentage
of revenues to 49.4% in 1998 from 55.6% in 1997. This is primarily due to
the addition of database marketing services in late December 1997, with
varied product margins for specific database marketing products. Margins
have fluctuated between quarters and the Company anticipates that this trend
will continue until its database marketing services products reach a more
mature state.

PRODUCT DEVELOPMENT EXPENSES. Product development expenses are composed
of resources, primarily labor, dedicated to the development of new products
and improving the efficiency of current database processes. Product
development expenses decreased to $1.2 million during 1998 from $1.3 million
during 1997, a 6.1% decrease. Product development costs decreased as a
percent of revenue to 6.2% in 1998 from 10.1% in 1997. Due to the fact that
the Company competes in a market characterized by rapid and continual
technological change, it anticipates adding new products and services, which
address the increasingly sophisticated, rapidly changing and demanding needs
of its customers and their evolving market strategies. As a result of the
uncertainty of these market demands, future product development expenses may
fluctuate. Included in products development expenses for 1998 was a write
down of capitalized internally developed software of $580,000.

TOTAL OPERATIONS

PRODUCT DEVELOPMENT. In 1998, a write down of capitalized internally
developed software in the amount of $920,000 occurred. These charges were
not allocated to the Research Division or IQ2.net since the prorata benefit
to each unit was not determinable.

SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of personnel and other costs
associated with sales, marketing, administration, finance, information
systems, human resources and general management. Sales, general and
administrative expenses increased 66.4% to $20.3 million (44.5% of total
revenues) during 1998 from $12.2 million (33.4% of total revenues) during
1997. The increase is related to an investment in a more experienced senior
management team. In addition, the Company's database marketing group
requires a higher sales, general and administrative operating cost component.
During 1998, the Company incurred one-time adjustments related to
reorganization efforts of $1.5 million. Sales, general and administrative
expenses directly attributable to segments are recorded as an expense of that
segment. Sales, general and administrative expenses for share services,
such as administration, finance and information systems, are allocated to the
segments based upon labor costs incurred, revenues and percentage utilization
in 1997 and labor costs incurred in 1998.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
28.5% to $1.3 million in 1998 from $1.0 million in 1997. This increase was
primarily due to the acquisition and amortization of the exclusive licensing
agreement to provide database services and to the purchases of computer
equipment and data processing systems required to support business growth.
Depreciation and amortization of office furniture and equipment are

<PAGE>

allocated to the segments based upon labor costs incurred.

INCOME TAXES. The Company's benefit for income taxes represents 53.9% of
the loss before income taxes for 1998. In 1997, the provision for income taxes
represents 21.2% of income before taxes. This rate varies from the Company's
combined federal and state income tax rates as a percentage of income (loss)
before taxes due to significant interest income derived from tax-free
investments.

YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996

RESEARCH DIVISION

TOTAL REVENUES. Total revenues increased 20.2% in 1997 to $23.5 million
from $19.6 million in 1996. Revenues from continuous services increased
23.3% to $19.8 million in 1997 from $16.1 million in 1996 due primarily to an
increased demand for proprietary tracking products and the increased number
of subscribers for the four subscription-based product families. Other
revenues increased 5.7% to $3.7 million in 1997 from $3.5 million in 1996,
due primarily to growth of the Company's non-recurring proprietary projects
and technology panel research. Revenues attributable to international market
research decreased 2.0% to $5.7 million in 1997 from $5.8 million in 1996.

COST OF REVENUES. Cost of revenues increased 39.6% to $12.3 million in
1997 from $8.8 million in 1996. Cost of revenues increased as a percentage of
revenues to 52.4% in 1997 from 45.1% in 1996. The increase in cost of revenues
as a percentage of revenues reflects an increase in the unit cost for
proprietary research projects, an increase in overall fixed costs associated
with syndicated products, and a higher ratio of custom panel work with lower
gross margins.

PRODUCT DEVELOPMENT EXPENSES. Product development expenses decreased to
$760,000 during 1997 from $2.5 million during 1996, a 69.7% decrease. Product
development costs decreased as a percent of revenue to 3.2% in 1997 from 12.8%
in 1996 attributable to the fact that expenses in 1996 were unusually high due
to three large product efforts.

IQ2.NET

TOTAL REVENUES. Total revenues increased 43.0% in 1997 to $12.6 million
from $8.8 million in 1996. Revenues from continuous services increased 56.5% to
$11.9 million in 1997 from $7.6 million in 1996 due primarily to growth in
registration services. Other revenues decreased 45.5% to $640,000 in 1997 from
$1.2 million in 1996, due primarily to the shift from third party relationships
to contracts with clients for registration. Revenues attributable to market
research from international services increased 124.8% to $4.7 million in 1997
from $2.1 million in 1996. The increase was attributable to a contract for data
medium sales as a short-term customer solution as the market shifted to more
electronic solutions for customer registration.

COST OF REVENUES. Cost of revenues increased 37.1% to $7.0 million in 1997
from $5.1 million in 1996. Cost of revenues decreased as a percentage of
revenues to 55.6% in 1997 from 58.0% in 1996. The decrease in cost of revenues
as a percentage of revenues reflects a higher ratio of affinity revenues.

PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased to
$1.3 million during 1997 from $480,000 during 1996, a 163.6% increase. Product
development costs increased as a percent of revenue to 10.1% in 1997 from 5.5%
in 1996. The Company made significant investments in 1997 to improve the
registration database operations.

<PAGE>

TOTAL OPERATIONS

SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 57.8% to $12.2 million (33.4% of total
revenues) during 1997 from $7.7 million (27.3% of total revenues) during
1996. The increase was a result of costs to build infrastructure throughout
1997. During 1997, the Company strengthened its management team with the
addition of several highly seasoned executives. The Company also committed
significant resources in the reorganization of its sales and marketing
infrastructure. This resulted in an increase in recruiting fees, relocation
fees and severance payments. Sales, general and administrative expenses
directly attributable to segments are recorded as an expense of that segment.
Sales, general and administrative expenses for share services are allocated
to the segments based on labor costs incurred, revenues and percentage
utilization in 1996 and 1997.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
47.2% to $1.0 million in 1997 from $700,000 in 1996. This increase was due to a
high level of property and equipment purchases in 1997 as a result of a
significant increase in number of employees and capital equipment acquisitions
during mid-year 1996 including establishing two new data collection facilities
and installation of corporate-wide standardized computer platforms, networks and
software to accommodate more efficient data communications.

INCOME TAXES. The Company's provision for income taxes represents 21.2%
and 30.8% of income before income taxes for 1997 and 1996, respectively. The
1997 and 1996 rates are below the Company's combined federal and state income
tax rates principally due to tax-free investment income.

<PAGE>

SELECTED QUARTERLY OPERATING RESULTS

The following tables set forth unaudited consolidated statement of
operations data for each of the eight quarters in the period beginning
January 1, 1997 and ending December 31, 1998, as well as the percentage of
the Company's total revenues represented by each item. In management's
opinion, this unaudited information has been prepared on the same basis as
the annual consolidated financial statements and includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented, when read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Form 10-K. The operating results for any quarter
are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL OPERATIONS
Total revenues $ 7,484 $ 7,517 $ 12,527 $ 9,015 $ 9,959 $ 9,987 $ 13,844 $ 11,909
Gross margin 3,527 3,467 5,316 4,530 4,161 4,874 6,156 5,904
Net income (loss) $ 583 $ 814 $ 1,382 $ (618) $(2,369) $ (267) $ 701 $ 356
--------- -------- --------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- -------- --------- --------
Net income (loss) per share:
Basic 0.07 0.10 0.16 (0.07) (0.28) (0.03) 0.08 0.04
Diluted 0.07 0.09 0.16 (0.07) (0.28) (0.03) 0.08 0.04
Weighted average shares:
Basic 8,338 8,348 8,390 8,410 8,484 8,452 8,307 8,011
Diluted 8,475 8,560 8,587 8,410 8,484 8,452 8,353 8,235

AS A PERCENTAGE OF TOTAL REVENUE

Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margins 47.1% 46.1% 42.4% 50.2% 41.8% 48.8% 44.5% 49.6%
Net income (loss) 7.8% 10.8% 11.0% (6.9%) (23.8%) (2.7%) 5.1% 3.0%
</TABLE>

AS A PERCENTAGE OF TOTAL REVENUE

Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margins 55.1% 52.4% 43.1% 46.4% 49.8% 45.8% 40.7% 44.1%
Net income (loss) 11.3% 12.2% (3.3%) 13.3% (14.0%) (17.4%) 4.2% (7.7%)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IQ2.NET
Total revenues $ 3,488 $ 3,080 $ 2,891 $ 3,111 $ 4,268 $ 4,757 $ 4,681 $ 5,630
Gross margin 1,325 1,142 1,167 1,946 1,721 2,476 2,430 3,161
EBIT $ 160 $ 154 $ (103) $ (981) $ (1,498) $ 78 $ 120 $ 724
--------- -------- --------- -------- --------- -------- --------- --------
--------- -------- --------- -------- --------- -------- --------- --------

AS A PERCENTAGE OF TOTAL REVENUE

Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margins 38.0% 37.1% 40.4% 62.5% 40.3% 52.0% 51.9% 56.1%
Net income (loss) 4.6% 5.0% (3.6%) (31.5%) (35.1%) 1.6% 2.6% 12.9%
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1998, the Company had cash of $5.6 million and
short-term investments of $28.0 million and working capital of $41.7 million.

The Company used $1.6 million of cash from operations for the year ended
December 31, 1998 as compared to generating $2.7 million of cash from
operations for the prior year. The decrease in cash flow used in operations
was primarily due to a shift in the timing of client payments.

During the year ended December 31, 1997, the Company generated $2.7 million
of cash from operations as compared to $428,000 during the prior year. The
change is primarily due to an increase in the receivable balances from 1995 to
1996 in relation to sales causing a greater use of cash from operations in 1996
as compared to fiscal years ending December 31, 1997 and 1995.

Pursuant to the billing terms between the Company and its customers, the
Company typically bills customers for products or projects before they have been
delivered. Billed amounts are recorded as deferred revenues on the Company's
financial statements and are recognized as income when earned. As of December
31, 1998 and 1997, the Company had $2.1 million and $2.4 million of deferred
revenues, respectively. In addition, when work is performed in advance of
billing, the Company will record this work as unbilled revenue. As of December
31, 1998 and 1997, the Company had $3.5 million and $2.8 million of unbilled
revenues, respectively. Substantially all deferred and unbilled revenues will be
earned and billed, respectively, within 12 months of the respective period ends.

For the year ended December 31, 1998, the Company generated net cash from
investing activities of $5.1 million. For the year ended December 31, 1997, net
cash used in investing activities was $2.0 million. During 1998, sales of
investments exceeded purchases of investments to fund the purchase of treasury
stock and net operating losses.

For the years ended December 31, 1997 and 1996, net cash used in investing
activities was $2.0 million and $52.9 million, respectively. During 1996, the
Company invested net proceeds from its initial and follow-on public offerings.
There were no public offerings in 1997 to generate cash for investment activity.
In 1997, cash was used to purchase an exclusive licensing agreement to market
and sell customer information products and to acquire property and equipment for
an increase in headcount.

The Company periodically considers acquisitions of companies that provide
products or services not offered by the Company, have strategic customer
relationships, are located in attractive geographic locations or

<PAGE>

have proprietary technologies. The Company may undertake such acquisitions
during 1999. At present, however, it has no commitments or agreements with
respect to any such acquisition.

Financing activities provided cash of $320,000 during fiscal 1998 and
$306,000 during fiscal 1997. Financing activities are comprised primarily of
the issuance of stock for stock options exercised and employee purchases under
the Employee Stock Purchase Plan.

Financing activities provided cash of $306,000 during 1997 and $51.5
million during 1996. During 1996, the Company generated net proceeds from its
initial and follow-on public offerings. There were no public offerings in 1997
or 1998 to generate cash.

During 1997 and 1996 the Company maintained a $3 million revolving bank
line of credit to fund cash requirements from time to time. The line of credit
matured on November 21, 1997 and was not renewed due to quick access to
investment balances. At December 31, 1998 the Company held $28.0 million in
short-term investments, primarily tax-free municipal notes and bonds.

The Company believes that the cash flows from operations, together with
existing cash balances and short term investments, will be sufficient to meet
its working capital and capital expenditure requirements for at least the next
12 months. Beyond that time, if cash flows from operations are not sufficient to
satisfy its financing needs, the Company may seek additional funding through
bank lines of credit and the sale of its securities, including equity
securities. There can be no assurance that such funding can be obtained on
favorable terms, if at all.

YEAR 2000 COMPLIANCE

The Year 2000 issue is a result of computer programs that were written
using two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. To the extent that the
Company's software applications contain operating instructions that are unable
to interpret appropriately the upcoming calendar year 2000 and beyond, some
level of modification or replacement of such applications will be necessary to
avoid system failures and the temporary inability to process transactions or
engage in other normal business activities.

Management has implemented a company-wide program to assess the computer
systems and applications for the year 2000. A team was established in 1998,
headed by the Company's chief operating officer, to coordinate the Company's
Year 2000 compliance efforts. The Year 2000 team is staffed with
representatives of the Company's management information group and the business
units. Consultants and legal counsel are being leveraged as needed. The chief
operating officer reports regularly on the status of the Year 2000 project to
the Company's Board of Directors.

The Year 2000 team has substantially completed an inventory of all
computer-based systems and applications (including embedded systems) the Company
uses in its operations. The inventory includes an assessment of all
computer-based systems and applications. Corrective action plans are being
prepared and prioritized based upon criticality to the Company's operations. The
Year 2000 team is determining what modifications or replacements will be
necessary to achieve compliance; implementing the modifications and
replacements; conducting tests necessary to verify that the modified systems are
operational; and transitioning the compliant systems into the regular operations
of the Company.

The Year 2000 team is also examining the Company's relationships with key
vendors and clients with whom the Company has significant business relationships
to determine, to the extent practical, the degree of such outside parties' Year
2000 compliance. Vendors and clients have been prioritized based upon
criticality to the Company's business operations. The team is in the process of
assessing vendor and client Year 2000 compliance.

<PAGE>

As part of the Year 2000 compliance effort, the team will be establishing
and implementing a contingency plan to provide for viable alternatives to ensure
that the Company's core business operations are able to continue in the event of
a Year 2000-related systems failure.

The Company is currently in the assessment/remediation phases of the
compliance plan, with testing to verify compliance expected to be completed
prior to December 31, 1999. The Company expects to incur costs of approximately
$150,000 to $250,000 through 1999 for consulting, administration, hardware,
software, and other expenses associated with Year 2000 compliance. To date, the
Company has incurred approximately $38,000 related to the assessment and
correction phases of the Year 2000 project. These charges are reported as a
component of selling, general and administrative expenses. The Company plans to
expense maintenance costs as incurred, while costs of updated software and
hardware will be amortized over the respective lives of the assets. The total
cost of the project is being funded through operating cash flows.

The Company does rely on third-party providers for key services such as
telecommunications and database marketing services. Interruption of these
services could, in management's view, have a material impact on the operations
of the Company. Efforts have begun to evaluate the readiness of these critical
suppliers. Management believes that, should the Company or other third parties,
with whom the Company has a significant business relationship, have a Year
2000-related systems failure, the most significant impact would likely be the
inability to deliver products in a timely fashion to its clients, to receive
certain products from vendors, or to process electronically certain internal
database programs. The impact could be material to the Company's liquidity or
results of operations.

STOCK REPURCHASE PROGRAM

In January 1998, the Board of Directors approved the repurchase of up to
850,000 shares of the Company's outstanding common stock. As of February 26,
1999, 720,000 shares have been repurchased for $5.9 million in open market
transactions.

FOREIGN CURRENCY

The Company's exposure to foreign currency rate fluctuations has been
relatively low. First, the Company generally requires payment from its customers
in U.S. dollars. Second, the Company controls vendor related foreign currency
risk both through contractual clauses requiring clients to reimburse the Company
for any material losses on contracts caused by exchange rate fluctuations and by
locking in forward currency contracts. The Company's objective in managing the
exposure to foreign currency fluctuations is to reduce earnings and cash flow
volatility associated with foreign exchange rate changes. Historically, the
Company has utilized foreign currency option contracts and forward contracts to
hedge a portion of its exposure on anticipated transactions and firm commitment
transactions. The currency hedged is the British pound. The Company monitors
its foreign exchange exposures to ensure the overall effectiveness of its
foreign currency hedge positions. However, there can be no assurance the
Company's foreign currency hedging activities will substantially reduce the
impact of fluctuations in currency exchange rates on its results of operations
and financial position. As of December 31, 1998, the Company had not entered
into any open forward contracts for U.S. dollar / British pound sterling
transactions.

SUBSEQUENT EVENT

On February 26, 1999, the Company disclosed that it had retained U.S.
Bancorp Piper Jaffrey Inc. to assist in reviewing strategic alternatives,
including the potential sale of all or part of the operations of the Company.

<PAGE>

RISK FACTORS AFFECTING RESULTS OF OPERATIONS

WE COULD FACE LIABILITY FOR INFORMATION AND DATA COLLECTED ELECTRONICALLY AND
TELEPHONICALLY.

We currently collect information both telephonically and electronically.
Specifically, some of our new products and services involve the use of the
Internet through commercial online services to gather information from end users
for processing and sale to our customers. A number of legislative initiatives
exist domestically and abroad that seek to regulate the telephonic or electronic
collection of data about persons.

In addition, an increasing number of court cases have been brought seeking
damages and injunctive relief for actions allegedly violating "rights of
privacy." (See "Privacy Policy" under Item 5 - Other Information.) The law in
this area, both statutory and case law, is highly unsettled. We can not assure,
therefore, that we will be allowed to continue to utilize existing or proposed
new products and services.

In addition, our ability to provide timely and accurate market research to
our customers depends on our ability to collect large quantities of high quality
data through interviews, customer registrations, product satisfaction
questionnaires and other similar types of surveys. If receptivity to our
customer registration, interview and survey methods declines, or for some other
reason their willingness to complete and return surveys, registrations, or other
information declines, or if we for any reason cannot rely on the integrity of
the data we receive, it would reduce the quantity and quality of the data we
seek to disseminate, which as a result would have a material adverse effect on
our ability to market and sell our market research products and on our results
of operations.

WE HAVE LIMITED EXPERIENCE IN THE DATABASE MARKETING INDUSTRY AND DEPEND ON
STRATEGIC ALLIANCES AND ACQUISITIONS FOR OUR DATABASE MARKETING PRODUCTS.

We plan to achieve a significant portion of our future revenue growth
through the expansion of our customer registration business and the development
of database marketing products. We have limited experience in the database
marketing industry, however, and we cannot assure that we will be successful in
developing and marketing our new line of database marketing products.

We also rely in large part on strategic alliances and the acquisition of
related technologies in the expansion of our database marketing products. Our
management has limited experience dealing with the business integration issues
posed by such alliances and acquisitions, and we can give no assurance that
these alliances and acquisitions will be successfully managed and integrated.
Our failure to manage and integrate our strategic alliances and acquisitions
could have a material adverse effect on our business, results of operations and
financial condition.

We currently process our database marketing products through a licensing
agreement under which we have a perpetual, but cancelable, contract to receive
database marketing services from the licensor. We currently have no alternative
methods of processing database-marketing products in the event of cancellation
of this contract. We attribute a significant amount of projected database
marketing revenues to this licensing agreement, which is cancelable by either
party under certain conditions. Currently, we have not achieved the targeted
minimum sales under this agreement; therefore, we have accrued an expense to
cover the targeted minimum payments. We cannot assure that we will be able to
achieve the minimum targets, and our failure to do so may have a material and
adverse impact on our business, results of operations and financial condition.

<PAGE>

WE MUST BE ABLE TO MANAGE OUR GROWTH.

Since inception, our rapid growth has placed significant demands on our
management, administrative, operational and financial resources. In order to
manage our growth, we will need to continue to implement and improve our
operational, financial and management information systems and continue to
expand, motivate and effectively manage an evolving and expanding work force.
If our management is unable to effectively manage our information systems and
work force under these circumstances, the quality of our products, our ability
to retain key personnel and our results of operations could be materially
adversely affected.

Furthermore, we cannot assure that the growth of our business will
continue. Our growth could be adversely affected by reductions in customers'
spending on market research or customer information products, increased
competition, possible pricing pressures and other general economic trends.
Although market research expenditures by technology companies have increased in
recent years as various companies have adopted certain marketing strategies
traditionally utilized by consumer goods manufacturers, we cannot assure that
this trend will continue or that technology companies will continue to rely on
externally-generated market research to enhance the marketing of their products.
A reduction in the growth of our business and the market research and database
information product industries would have a material adverse impact on our
business, results of operations, and financial condition.

We hope to achieve a portion of our future revenue growth, if any, through
acquisitions of complementary businesses, products and technologies, although we
currently have no commitments or agreements with respect to any acquisition.
Our management has limited experience dealing with the issues of product,
systems, personnel and business strategy integration posed by acquisitions, and
we cannot assure that past or future acquisitions will be successfully
integrated into our business. In addition, we cannot assure that future
acquisitions will not dilute our earnings per share.

OUR REVENUES ARE DEPENDENT ON SUBSCRIPTIONS AND CONTRACT RENEWALS.

In 1998, 86.3%, of our revenues were derived from customer subscriptions to
our renewable subscription-based products and contracts for renewable
proprietary and database products. Research Division continuous revenues in
1998 were 84.8% of total revenues for the division. IQ2.net continuous revenues
were 88.4% in 1998. We expect that a material portion of our revenues for the
foreseeable future will continue to be derived from these subscriptions and
contracts. Substantially all of our subscriptions and contracts are renewable
annually at the option of our customers. Our customers have no obligation to
renew their contracts with us and generally have no minimum purchase
commitments. To the extent that customers fail to renew or defer their renewals
to a date later than we anticipate, our quarterly results may be materially
adversely affected. Our ability to secure renewals is dependent upon, among
other things, our ability to deliver consistent, high-quality and timely data.
As a result, we cannot assure that we will be able to maintain our historical
renewal rates. A decline in our renewal rates could have a material adverse
effect on our business, results of operations and financial condition.

WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP OUR DIRECT SALES FORCE.

We have historically relied on customer referrals, supplemented by our own
sales and marketing efforts, to generate the majority of our revenue growth for
the Research Division. Sales for IQ2.net are primarily from sales and marketing
efforts. As we develop new products and services targeted at more complex,
integrated marketing solutions, we expect to continue to develop and expand our
direct sales force. Our plans for future growth may depend in part on our
ability to hire, train, deploy, manage and retain an increasingly large and more
sophisticated direct sales force. We cannot assure that we will be able to
develop or manage this sales force.

WE RELY HEAVILY ON OUR KEY CUSTOMERS IN AN INDUSTRY WHICH CONTINUES TO
CONSOLIDATE.

We rely on a limited number of key customers for the majority of our
revenues. Our ten largest customers in 1998 generated 56.7% of our
consolidated revenues for the year. Revenues for the Research Division and
IQ2.net were 46.2% and 71.0%, respectively.

<PAGE>

In 1998, our three largest customers, Sprint, Hewlett-Packard and IBM, each
accounted for over 9% of our revenues and together accounted for 34.5% of
revenues. We expect that three customers will each account for over 10 % of
revenues in 1999. Over time, our key customers will vary depending upon the
seasonality and the nature of the contracts. Recently, there has been a
significant consolidation of companies in the technology industries we serve,
a trend we believe will continue. Any consolidation among our top customers
could adversely affect aggregate customer budgets for our products and
services. We cannot assure that we will be able to maintain our existing
customer base or that we will be able to attract new customers. The loss of
one or more of our key customers or a significant reduction in business from
these customers, regardless of the reason, would have a material adverse
effect on our business, results of operations and financial condition.

The top three (3) customers account for 25.1% and 46.4% of revenues for the
Research Division and IQ2.net, respectively.

WE HAVE A HISTORY OF NET LOSSES, AND OUR FUTURE PROFITABILITY IS UNCERTAIN.

We have incurred net annual losses in each year from 1991 through 1994
before recording a net profit in each of 1995, 1996 and 1997. In addition, we
had a net loss for the first and second quarters of 1998, which resulted in a
net loss for 1998. In view of our prior operating history, we cannot assure
that we will be able to achieve and maintain profitability on a quarterly or
annual basis or that we will be able to sustain or increase our revenue growth
in future periods.

WE FACE SIGNIFICANT COMPETITION IN THE MARKET RESEARCH INDUSTRY.

The technology-focused market research industry is highly competitive. In
the past, we have competed directly with relatively small, local providers of
survey-based technology-focused market research. We also compete directly with
third party providers of customer information software, such as Leader
Technologies, Inc. and Encompass, Inc., as well as vendors' own customer
information software. In addition, we compete indirectly with significant
providers of (i) analyst-based, technology-focused market research (such as
Gartner Group, Inc., META Group, Inc. and Forrester Research, Inc.); (ii)
survey-based, general market research (such as NFO Research, Inc., Market Facts,
Inc., and The NPD Group, Inc.); (iii) analyst-based, general business consulting
and (iv) database marketing (such as Acxiom Corporation and Metromail
Corporation).

Most of our competitors have substantially greater financial, information
gathering and marketing resources than we do and could decide to increase their
resource commitments to our market. Moreover, these companies typically compete
with us for funds available within aggregate industry-wide market research
budgets. There are few barriers to entry into the market research industry, and
we expect increased competition in one or more of our market segments through,
among other things, pricing pressure, increased marketing expenditures and loss
of market share. We cannot assure that we will continue to compete successfully
against existing or future competitors.

THE MARKET RESEARCH INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND
DEMAND FOR NEW PRODUCTS.

Our customers compete in markets characterized by rapid, continual
technological change. Our success will depend in part upon our ability to
anticipate and keep pace with constantly evolving technology and to add new
products and services which address the increasingly sophisticated, rapidly
changing and demanding needs of our customers. In particular, we are expending
significant resources to develop our proprietary customer information software
products to take advantage of certain market opportunities in the customized
research market. Due to the accelerated rate at which we respond to our
customers' demand for software solutions, our software products may contain
defects following customization or when new versions are released. In the event
of defects, we may experience delays or lost revenue to correct these defects.

<PAGE>

In addition, the significant growth in the use of the World Wide Web has
created the opportunity to use the Internet as an information transmission
medium. Accordingly, we are expending significant resources to develop
additional Internet-based information collection tools and data delivery. We
can not assure, however, that we will be successful in developing and marketing,
on a timely basis, these or other new or improved products and services that
adequately and competitively address the needs of the marketplace. Our failure
to continue to provide insightful and timely data in a manner that meets rapidly
changing market needs could materially and adversely affect our future operating
results.

WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL.

Our future performance will depend to a significant extent upon the efforts
and abilities of certain key personnel who have expertise in developing,
interpreting and selling survey-based information for technology markets and
database services to technology, telecommunications, cable and utility markets.
Although customer relationships are managed at many levels at our company, the
loss of one or more of our corporate officers or senior managers could have an
adverse effect on our business.

Our success may also depend on our ability to hire, train and retain
skilled personnel in all areas of our business. Competition for qualified
personnel in the market research and the database information industries and
geographic markets is intense. Many of the companies with which we compete for
qualified personnel have substantially greater financial and other resources
than us. Competition for qualified personnel is expected to become more intense
as competition in our industry increases generally. We cannot assure that we
will be able to recruit, retain and motivate a sufficient number of qualified
personnel to compete successfully. If one or more of our key employees decide
to leave us, join a competitor, or otherwise compete directly or indirectly with
us, this could have a material adverse affect on our business, results of
operations and financial condition.

OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.

Our operating results in any particular fiscal period have fluctuated in
the past and will likely fluctuate significantly in the future due to various
factors. We expect that revenues from customer registration products will
continue to increase, however, these revenues are, in part, a function of the
timing of customer shipments, which can be difficult to predict and over which
we have no control. A delay or decrease in orders for our customer registration
products could have a material adverse effect on our future operating results.

In addition, substantially all our revenues and expenses attributable to
our CIMS product for a particular year are deferred and recognized when the
annual final study is completed and delivered, which is usually in the third
quarter of that year. Although the CIMS study was delivered in the third
quarter of 1998, delays in delivering the final study in future years could
postpone recognition of such revenues and expenses until the fourth quarter of a
given year, which would materially affect operating results for the third and
fourth quarters of that year. Furthermore, all costs related to CIMS are
included in cost of revenues and none are allocated to sales, general and
administrative costs, which historically has reduced our third quarter gross
margin below that of other quarters.

Our database product operations provide a variety of services with
significantly different profit margins. We have experienced quarterly
variances in the product mix which has caused the cost of revenues to
fluctuate. Many of our customers operate in industry segments that are
becoming increasingly seasonal, with sales in the fourth calendar quarter
constituting a growing portion of the annual sales of these customers. This
may translate into seasonal demand for our products, particularly our
customer registration products due to consumer buying patterns, and
especially patterns associated with Christmas purchases.

<PAGE>

Our revenues may also fluctuate as a result of a variety of other factors,
including the following:

- - timing of orders from customers
- - the size and timing of orders for customer registration products
- - response rates on customer information products
- - delays in development and customer acceptance of custom software
applications
- - product or panel development expenses
- - new product or service introductions or announcements by us or our
competitors
- - levels of market acceptance for new products and services
- - the hiring and training of additional staff and customer demand for market
research and
- - general economic conditions.

Furthermore, a significant portion of our overhead is fixed in the short
term and, therefore, our spending commitments must be made in advance of revenue
commitments by customers. As a result, our business, results of operations and
financial condition may be materially adversely affected in any particular
quarter if revenues fluctuate or fall below our expectations.

WE RELY ON OUR PROPRIETARY SYSTEMS, SOFTWARE AND PROCEDURES.

Our success is in part dependent upon proprietary systems, software and
procedures, developed by us specifically to serve our customers in the
technology industry, such as the following:

- - software technology
- - research methods
- - data analysis techniques and
- - internal systems and procedures.

We have no patents, therefore we rely on a combination of copyright,
trademark and trade secret laws as well as employee and third party
non-disclosure agreements to protect our proprietary systems, software and
procedures. We can not assure that the steps we take to protect our proprietary
rights will be adequate to prevent misappropriation of such rights or that third
parties will not independently develop functionally equivalent or superior
systems, software or procedures. We believe that our systems, software and
procedures and other proprietary rights do not infringe upon the proprietary
rights of third parties. We can not assure, however, that third parties will not
assert infringement claims against us in the future, or that any of these claims
would not require us to enter into costly license arrangements or result in
lawsuits against us, regardless of the merits of the claims.

IF ANY OF OUR DATA STORAGE FACILITIES OR TELECOMMUNICATIONS LINKS WERE DAMAGED,
OUR BUSINESS OPERATIONS WOULD BE ADVERSELY AFFECTED.

Our operations are dependent upon our ability to protect our information
databases against damage from fire, power loss, telecommunications failure,
natural disaster or a similar event. The on-line services we provide are
dependent on links to telecommunication servers and the internet, and most of
our data is stored in electronic form. Any damage to these servers, data
storage facilities or the Internet which causes interruptions in our operations
or ability to transmit data would affect our ability to conduct business and
would have a material adverse effect on our business. Although we carry
business interruption insurance covering some types of business interruptions,
we can not assure that this insurance would be adequate to cover any losses in
the event of a power or technology failure.

<PAGE>

WE COULD FACE LIABILITY FROM OUR USE OF THE CIMS DATA.

CIMS is one of the leading databases of media habits in the United States,
covering the print, television and Internet viewership habits of purchasers of
technology in both the business and household contexts. CIMS data is used by
both advertisers and media companies. Advertisers use CIMS data as a key
component in their media buying decisions, and media companies use CIMS data to
promote their media properties. CIMS data can have a significant impact on
advertiser demand for, and advertising rates charged by media companies. Media
company dissatisfaction with CIMS data can lead to litigation against the
provider of the CIMS data. Although media company dissatisfaction has not
resulted in litigation against us, we can not assure that we will not face
future litigation as a result of media company dissatisfaction with CIMS or its
data results. This type of litigation, if initiated against us, could have a
material adverse effect on our business, results of operations and financial
condition.

WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.

Revenues attributable to international market research represented 27.8%,
28.5% and 14.8% of our revenues for the years ended December 31, 1996, 1997 and
1998. We expect that revenues from international market research will continue
to account for a material portion of our revenues. Our international data
collection operations, however, are subject to numerous risks, including:

- - maintenance of an international data collection network that adheres to our
quality standards,
- - fluctuations in exchange rates
- - cultural and business practice differences
- - seasonal reductions in business activity in certain parts of the world
- - political, legal and economic conditions
- - tariffs and other trade barriers
- - longer accounts receivable collection cycles and
- - potentially adverse tax consequences.

One or more of these factors could have a material adverse effect on our
international operations and, consequently, on our business, results of
operations and financial condition. In addition, the demand for our
international market research depends on the international sales and operations
of our customers, which may increase or decrease over time. The addition of
market research coverage in new geographic territories requires the commitment
of considerable management and financial resources and may negatively impact our
near-term results of operations. In addition to the above factors, a decline in
our ability to provide and market timely, high-quality data across international
markets would have a material adverse effect on our business, results of
operations and financial condition.

VOLATILITY OF STOCK PRICE.

The trading price of our common stock has been volatile and is likely to
continue to be subject to wide fluctuations in response to a variety of
factors, including quarterly variations in operating results, the signing of
new contracts, new customers, consolidations in the industry, technological
innovations or announcements of new products by us or our competitors,
changes in senior management, developments in patents or other intellectual
property rights, general conditions in the technology-focused market research
industry, revised earnings estimates, comments or recommendations issued by
securities, our competitors or the technology-focused, market research
industry and general economic and market conditions. In addition, it is
possible that in some future period our operating results may be below the
expectations of public market analysts and investors. In this event, the
price of our common stock could be materially adversely affected.

<PAGE>

Additionally, the stock market in general has experienced extreme price
volatility in recent years. Volatility in price and volume has had a
substantial effect on the market prices of many companies for reasons unrelated
or disproportionate to the operating performance of such companies. These broad
market fluctuations could also have a significant impact on the market price of
our common stock.

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INTELLIQUEST INFORMATION GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . 32
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Operations . . . . . . . . . . . . . . . 34
Consolidated Statements of Comprehensive Income (Loss). . . . . . . 35
Consolidated Statements of Common Stockholders' Equity (Deficit). . 36
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . 37
Notes to Consolidated Financial Statements . . . . . . . . . . . . 39
</TABLE>

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of IntelliQuest Information Group, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, common stockholders' equity deficit
and cash flows present fairly, in all material respects, the financial
position of IntelliQuest Information Group, Inc. and its subsidiaries at
December 31, 1998 and 1997 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

Austin, Texas
February 26, 1999

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,785 $ 5,611
Short term investments 40,752 28,010
Accounts receivable, net of allowances for doubtful accounts of
$375 and $852, respectively 7,904 10,978
Unbilled revenues 2,840 3,532
Projects in process 127 153
Prepaid expenses and other assets 593 2,336
------- -------
Total current assets 54,001 50,620
Property and equipment, net 4,436 2,850
License agreement, net 7,500 7,324
Other assets 1,470 1,793
------- -------
Total assets $67,407 $62,587
------- -------
------- -------

LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,474 $ 3,996
Accrued liabilities 1,918 2,826
Deferred revenues 2,420 2,145
Other current liabilities 553 -
Total current liabilities 7,365 8,967
Deferred rent and other 172 79
Total liabilities 7,537 9,046
Commitments and contingencies (Note 7)
Series A junior participating preferred stock (Note 11) - -
Common stockholders' equity:
Common stock, $0.0001 par value, 30,000,000 shares authorized,
8,411,000 and 8,563,000 shares issued and outstanding, respectively
0 and 720,000 shares in treasury, respectively 1 1
Capital in excess of par value 58,834 53,976
Other 13 121
Accumulated earnings (deficit) 1,022 (557)
------- -------
Total common stockholders' equity 59,870 53,541
------- -------
Total liabilities and common stockholders' equity $67,407 $62,587
------- -------
------- -------
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues:
Continuous services $ 23,719 $ 31,778 $ 39,440
Other services 4,648 4,765 6,259
--------- --------- ---------
Total revenue 28,367 36,543 45,699
--------- --------- ---------
Operating expenses:
Cost of revenues 13,949 19,703 24,604
Sales, general and administrative 7,738 12,214 20,325
Product development 3,644 2,796 4,272
Depreciation and amortization 701 1,032 1,326
--------- --------- ---------
Total operating expenses 26,032 35,745 50,527
--------- --------- ---------
Operating income (loss) 2,335 798 (4,828)
--------- --------- ---------
Other income (expense):
Interest income and other 875 1,955 1,404
Interest expense (17) (9) (1)
Income (loss) before income taxes 3,193 2,744 (3,425)
Provision for (benefit from) income taxes 984 583 (1,846)
--------- --------- ---------
Net income (loss) $ 2,209 $ 2,161 $ (1,579)
--------- --------- ---------
--------- --------- ---------
Basic net income (loss) per share $ 0.32 $ 0.26 $ (0.19)
--------- --------- ---------
--------- --------- ---------
Diluted net income (loss) per share $ 0.30 $ 0.25 $ (0.19)
--------- --------- ---------
--------- --------- ---------
Basic weighted average number of common and
common equivalent shares outstanding 6,667,000 8,372,000 8,311,000
--------- --------- ---------
--------- --------- ---------
Diluted weighted average number of common and
common equivalent shares outstanding 7,317,000 8,519,000 8,311,000
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS) (EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1997 1998
-------- ----------
<S> <C> <C>
Net income (loss) $ 2,161 $ (1,579)

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net (3) 27

Unrealized gain on securities, net 17 28
-----------------------

Other comprehensive income 14 55

Comprehensive income (loss) $ 2,175 $ (1,524)
-----------------------
-----------------------
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN ACCUMULATED TOTAL
PAR EXCESS OF EARNINGS STOCKHOLDERS'
SHARES VALUE PAR VALUE OTHER (DEFICIT) EQUITY
--------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,495,000 $ 1 $ 2,371 $ (61) $ (3,285) $ (974)
Accretion of preferred stock to redemption
value -- -- -- -- (63) (63)
Conversion of redeemable convertible preferred
stock and warrants upon initial public offering 2,118,000 -- 5,020 -- -- 5,020
Common stock issued upon initial public
offering, net 1,635,000 -- 25,248 -- -- 25,248
Common stock issued upon secondary offering, net 1,000,000 -- 25,572 -- -- 25,572
Issuance of common stock under employee plans,
including tax effects 84,000 -- 151 -- -- 151
Other -- -- -- 39 -- 39
Net income -- -- -- -- 2,209 2,209
--------- ---------- ---------- ----------- ------------ -------------
Balances, December 31, 1996 8,332,000 1 58,362 (22) (1,139) 57,202
Issuance of common stock under
employee plans, including tax effects 79,000 -- 601 -- -- 601
Other -- -- (129) 35 -- (94)
Net income -- -- -- -- 2,161 2,161
--------- ---------- ---------- ----------- ------------ -------------
Balances, December 31, 1997 8,411,000 1 58,834 13 1,022 59,870
Issuance of common stock under employee plans,
including tax effects 84,000 -- 330 -- -- 330
Issuance of unregistered stock (Note 2) 68,000 -- 733 -- -- 733
Treasury stock purchases (720,000) -- (5,921) -- -- (5,921)
Other -- -- -- 108 -- 108
Net loss -- -- -- -- (1,579) (1,579)
--------- ---------- ---------- ----------- ------------ -------------
Balances, December 31, 1998 7,843,000 $ 1 $ 53,976 $ 121 $ (557) $ 53,541
--------- ---------- ---------- ----------- ------------ -------------
--------- ---------- ---------- ----------- ------------ -------------
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,209 $ 2,161 $ (1,579)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 812 1,225 1,598
Bad debt expense 141 374 380
Asset impairment and loss on disposal of assets - - 2,873
Other 34 104 13
Net changes in assets and liabilities:
Accounts receivable and unbilled revenues (4,768) (1,831) (4,454)
Prepaid expenses and other assets (231) (269) (2,098)
Projects in process (27) (29) (26)
Accounts payable and accrued expenses 1,262 667 2,340
Deferred revenues 883 (380) (275)
Other 113 688 (418)
-------------------------------------
Net cash provided by (used in) operating activities 428 2,710 (1,646)
-------------------------------------

Cash flows from investing activities:
Purchases of short-term investments (167,438) (220,375) (176,385)
Sales and maturities of short-term investments 116,286 229,263 188,919
Purchases of property and equipment, net (1,605) (3,353) (1,497)
Purchase of exclusive licensing rights - (7,500) -
Purchase of Information Technology Forum Operations - (138)
Purchase of treasury stock - - (5,921)
Other (149) - 171
-------------------------------------
Net cash (used in) provided by investing activities (52,906) (1,965) 5,149
-------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 51,508 472 330
Borrowings under line of credit 761 2,265 -
Repayments under line of credit (575) (2,451) -
Other (158) 20 (7)
-------------------------------------
Net cash provided by financing activities 51,536 306 323
-------------------------------------
Net (decrease) increase in cash (942) 1,051 3,826
Cash at the beginning of the period 1,676 734 1,785
-------------------------------------
Cash at the end of the period $ 734 $ 1,785 $ 5,611
-------------------------------------
-------------------------------------
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---- ---- ----
<C> <C> <C>
Supplemental cash flow disclosures:
Interest paid $ -- $ 31 $ 1
----------------------------------
----------------------------------
Property and equipment acquired under capital leases $ 47 $ -- $ --
----------------------------------
----------------------------------
Taxes paid $ 278 $ 968 $ 51
----------------------------------
----------------------------------

Schedule of noncash investing and financing activities:
Purchase of Information Technology Forum operations
Working capital other than cash $ -- $ -- $ 43
Equipment and leasehold improvements -- -- 17
Intangibles -- -- 821
Capital lease assumed -- -- (10)
Issuance of common stock -- -- (733)
-----------------------------------
-----------------------------------
Conversion of preferred stock to common stock $5,020 $ -- $ --
-----------------------------------
-----------------------------------

</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY

IntelliQuest Information Group, Inc. ("IntelliQuest" or the "Company"), a
Delaware Corporation, is a leading provider of quantitative marketing
information to technology companies and direct marketing services to the
Internet. IntelliQuest's Research Division supplies customers with information
about technology markets, customers and products on both a subscription basis
and a proprietary project basis. The Company's IQ2.net Division focuses on a
suite of online and database marketing services which can greatly improve the
identification and segmentation of customers and prospects for more effective
customer acquisition and retention.

IntelliQuest merged with Pipeline Communications, Inc. during May 1996 and
Zona Research, Inc. during February 1997. Unless otherwise specified,
references herein to the "Company" or "IntelliQuest" mean IntelliQuest
Information Group, Inc. and all of its wholly-owned subsidiaries.

2. MERGERS AND ACQUISITIONS- PIPELINE COMMUNICATIONS, ZONA RESEARCH AND
INFORMATION TECHNOLOGY FORUM, INC.

In May 1996, IntelliQuest completed a merger with Pipeline Communications,
Inc. ("Pipeline") which became a wholly-owned subsidiary of IntelliQuest. A
total of 562,500 shares of IntelliQuest common stock and common stock options
were exchanged for all outstanding shares of common stock, stock options, and
warrants of Pipeline. The transaction was accounted for as a pooling of
interests and therefore, all prior period financial statements have been
restated as if the merger had taken place at the beginning of such periods.

In February 1997, IntelliQuest completed a merger with Zona Research, Inc.
("Zona Research") in which Zona Research became a wholly-owned subsidiary of
IntelliQuest. A total of 250,000 shares of IntelliQuest common stock were
exchanged for all the outstanding shares of common stock of Zona Research. The
transaction was accounted for as a pooling of interests and, therefore, all
prior period financial statements have been restated as if the merger took place
at the beginning of such periods.

Combined and separate results of operations for the periods prior to the
mergers with Pipeline and Zona Research were as follows (in thousands):

1996 1997
---- ----
<S> <C> <C>
Revenues:
IntelliQuest (including Pipeline after May 1996 and Zona Research after
February 1997) ....................................................................... $ 24,895 $ 36,094
Pipeline (through May 1996) ............................................................. 1,557 --
Zona Research (through February 1997).................................................... 1,915 449
-------- --------
Combined .................................................................................... $ 28,367 $ 36,543
-------- --------
-------- --------
Net income (loss):
IntelliQuest (including Pipeline after May 1996 and Zona Research after February 1997)... $ 2,662 $ 2,352
Pipeline (through May 1996) ............................................................. (83) --
Zona Research (through February 1997) ................................................... (370) (191)
-------- --------
Combined .................................................................................... $ 2,209 $ 2,161
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Effective January 1, 1998, the Company purchased certain assets of
Information Technology Forum, Inc. ("ITF") a company wholly owned by Charles W.
Stryker, who was a Director of the Company at the time of the acquisition. The
assets were purchased with cash and stock and the transaction was accounted for
under the purchase method. The assets purchased were recorded at fair value at
the time of purchase. The excess of the purchase price over the fair value of
amounts assigned to the net tangible assets purchased has been assigned to
goodwill in the amount of approximately $831,000. As the operations of ITF are
immaterial to the Company as a whole, pro forma financial statements are not
disclosed. There were no transactions in 1998.

3. SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Since much of the Company's Research Division revenues are
based upon percentage of projects completed based on costs incurred compared to
total estimated project costs, the determination of the resultant revenue
requires ongoing estimates by management of costs to complete these projects.
Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and all domestic and foreign subsidiaries, which are all wholly owned. All
significant intercompany transactions and balances have been eliminated.

REVENUE RECOGNITION

CONTINUOUS SERVICES

The Company offers renewable subscription-based products which provide
similar information to a number of clients at a shared-cost price. The Company
also offers proprietary tracking products that manage ongoing market feedback
and proprietary research. Revenue from certain annual subscription-based
products, such as Computer Industry Media Study (CIMS), and the related costs
are deferred until delivery. Revenues from other renewable subscription-based
and proprietary tracking products containing a subscription period are
recognized on a straight-line basis over the subscription period. Revenue from
processing transactions is recognized as the transactions are processed for
customers. The Company recognizes revenue for marketing services at the time
services are provided. For sales of data under annual agreements, the Company
recognizes revenue upon the delivery of data. Revenue from conferences is
recognized upon completion of each conference. Losses on a given contract are
recognized when determined probable.

During 1997, the Company made a change in its reporting of revenue from
certain recurring conferences (including Brand Tech Forum). In 1997, revenue
from recurring conferences is included in continuous services. Financial
information from prior years was reclassified to conform to the 1997
classification of revenues.

OTHER SERVICES

Revenues from proprietary research service contracts are recognized in
proportion to performance required under the contracts (percentage of
completion) based on cost input; losses on a given contract are recognized
when determined probable.

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company bills its clients for products and services based on terms of
the contracts, which may not coincide with criteria required for revenue
recognition. Deferred revenue represents amounts invoiced prior to rendering the
related services while unbilled revenue represents the billing value of services
rendered prior to being invoiced. Substantially all the deferred and unbilled
revenue will be earned and billed, respectively, within twelve months of the
respective period ends.

PRODUCT DEVELOPMENT COSTS

Product development costs include costs incurred to develop or design new
products, services or processes and significantly enhance existing products,
services and processes and are expensed as incurred. If material, costs to
develop software, which is an integral part of a product or service, that are
incurred subsequent to attaining technological feasibility are capitalized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE
MARKETED". These costs are then amortized on a straight line basis over the
estimated economic life or on the ratio of current revenues to total projected
product revenues, whichever is greater.

The Company capitalized internal software development costs of $100,000
and $1.4 million for the years ended December 31, 1996 and 1997,
respectively. There were no software development costs capitalized in 1998.
Amortization of such costs was $180,000 for the year ended December 31, 1997.
Based on changes in management's plan, the Company recorded an impairment
charge of $1.4 million related to capitalized software development costs
during the year ended December 31, 1998.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization is provided on a straight-line
basis over the estimated useful lives of the respective assets, which range from
three to seven years. Leasehold improvements are depreciated over the life of
the related lease. Amortization of assets acquired under capital leases is
included in depreciation and amortization.

PROJECT COSTS

Costs associated with CIMS are deferred and included in projects in process
until the results of the study are delivered. These costs include personnel and
other direct costs, as well as associated overhead. Upon release of the study,
these costs are included in cost of revenues.

Costs relating to all other projects are expensed as incurred.

INTANGIBLE ASSETS

Intangible assets consists of goodwill, resulting from business
acquisitions and representing the excess of purchase price over the estimated
fair value of net assets acquired, deferred financing costs, deferred
acquisition costs and an exclusive licensing agreement (Note 5).

Goodwill at December 31, 1998 was approximately $8.3 million and is
amortized on a straight-line basis over 12 years, the expected period of
benefit. The Company periodically evaluates whether events and circumstances
have occurred that indicate that these intangibles may not be recoverable.
When factors indicate that these intangibles should be evaluated for possible
impairment, the Company uses the projected undiscounted net cash flows of the
related businesses acquired in measuring the recoverability of these
intangibles.

INCOME TAXES

Deferred income taxes are provided using the liability method for the tax
effects of differences between the financial reporting bases and the income tax
bases of the Company's assets and liabilities as measured at the enacted tax
rates.

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SHORT-TERM INVESTMENTS

Short-term investments are carried at market value, which approximates
cost, at the balance sheet date. Short-term investments consist of funds
primarily invested in government securities. Investment securities generally
have maturities of less than one year.

The Company accounts for investment securities under SFAS No. 115,
"ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES". SFAS No.
115 requires investment securities to be classified as held-to-maturity, trading
or available-for-sale based on the characteristics of the securities and the
activity in the investment portfolio. At December 31, 1998, all investment
securities are classified as available-for-sale.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Company's financial instruments, including cash,
short-term investments, and trade receivables and payables, approximates fair
value. The carrying amount of short-term investments approximates fair value
because of the short maturity and nature of these instruments. The Company
places its cash investments in quality financial instruments and limits the
amount invested in any one institution or in any type of instrument. The
Company has not experienced any significant gains or losses on its investments.

FOREIGN CURRENCIES

The foreign subsidiary operates in a local currency environment. Balance
sheet accounts are translated at exchange rates existing at the balance sheet
date. Revenue and expense accounts are translated at average exchange rates
prevailing during the period. Translation adjustments are accumulated and
reported as a separate component of stockholders' equity. There have not been
material transaction gains or losses through December 31, 1998.

SEGMENT REPORTING

In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 supersedes SFAS 14, "Financial Reporting
for Segments of a Business Enterprise," replacing the "industry segment"
approach with the "management" approach. The management approach designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. SFAS 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not
affect results of operations or financial position but did affect the
disclosure of segment information (see Note 14).

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNINGS PER SHARE

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "EARNINGS PER SHARE" ("SFAS 128"). SFAS 128
provides guidance on the computation of earnings per share. The Company
adopted the statement in the fourth quarter of 1997, as required. SFAS 128
requires all prior earnings per share data be restated to conform with the
provisions of the statement. Basic earnings per share is computed by
dividing net income available to common stockholders by the weighted average
number of shares outstanding during the period, as restated for shares issued
in business combinations accounted for as poolings-of-interest. Diluted
earnings per share is computed using the weighted average number of shares
determined for the basic computations plus the number of shares of common
stock that would be issued assuming all contingently issuable shares having a
dilutive effect on earnings per share were outstanding for the period.

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
(In thousands, except share and per share data)

1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income (loss) ..................................... $ 2,209 $ 2,161 $ (1,579)
Preferred stock accretion ............................. 63 -- --
----------- ----------- -----------
Net income (loss) available to common stockholders..... $ 2,146 $ 2,161 $ (1,579)
----------- ----------- -----------

Weighted average common shares outstanding (basic) .... 6,667,000 8,372,000 8,311,000
Convertible preferred stock ........................... 399,000 -- --
Warrants .............................................. 53,000 -- --
Stock options (1) ..................................... 198,000 147,000 --
----------- ----------- -----------
Weighted average common shares outstanding (diluted) .. 7,317,000 8,519,000 8,311,000
----------- ----------- -----------

Earnings (loss) per share:
Basic ................................................. $ 0.32 $ 0.26 $ (0.19)
Diluted ............................................... $ 0.30 $ 0.25 $ (0.19)
</TABLE>

(1) Due to the net loss in the year ended December 31, 1998, diluted weighted
average shares excludes the effect of the diluted securities.

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
---- -----
<S> <C> <C>
Equipment ............................................. $ 3,802 $ 4,110
Purchased software .................................... 638 690
Internally developed software ......................... 1,404 --
Furniture and fixtures ................................ 1,306 1,301
Leasehold improvements ................................ 306 642
-------- --------
7,456 6,743
Less - Accumulated depreciation and amortization ...... (3,020) (3,893)
-------- --------
$ 4,436 $ 2,850
-------- --------
-------- --------
</TABLE>

Included in the December 31, 1997 and 1998 balances of equipment are $283,000
of assets acquired under lease. Accumulated amortization for these assets
was $196,000 and $250,000 at December 31, 1997 and 1998, respectively, and
amortization expense was $40,000, $54,000, and $54,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.

5. LICENSE AGREEMENT

On December 22, 1997, the Company paid $7.5 million for an exclusive
perpetual licensing agreement (cancelable under certain conditions) to market
and sell database products to the high-tech, telecommunications, cable and
utility industries. In conjunction with the agreement the Company will pay the
licensor royalties and fees on revenue generated from the sale of data and
services. The amortizable rights in data and the non-compete portion of the
license agreement are amortized on a straight-line basis over the estimated
useful life of the agreement. Accumulated amortization at December 31, 1997
and 1998 was $0 and $211,000, respectively.

Of the total license fee of $7.5 million, $5 million is refundable under
certain conditions. Should the license be canceled by the Company, or
canceled due to the acquisition by the Company of a competitor of the
licensor or to the acquisition of the Company by a competitor of the
licensor, or under certain other conditions, the $5 million portion may be
recoverable by the Company.

The Company prepares an annual assessment to identify any potential
impairment of assets.

The agreement provides for annual target minimum payments. Royalties and
service fees for the database marketing products were less than that required to
satisfy the annual target minimum payments under this agreement; therefore, the
Company recognized a liability during the year ended December 31, 1998 for the
difference between the actual and target minimum payments (Note 6).

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1998
------ ------
<S> <C> <C>
Accrued payroll and benefits ............. $1,412 $1,441
Taxes payable ............................ 101 47
Accrued target minimum payments........... -- 787
Other accrued liabilities ................ 405 551
------ ------
$1,918 $2,826
------ ------
------ ------
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

The Company leases office space, equipment and software under certain
noncancellable operating lease agreements. These leases have expiration dates
ranging from 1999 through 2008. Rent expense under operating leases totaled
$542,000, $959,000 and $1.4 million for the years ended December 31, 1996,
1997 and 1998, respectively.

Future minimum lease payments under all leases as of December 31, 1998
are as follows (in thousands):

<TABLE>
<CAPTION>
OPERATING
LEASES
------
<S> <C>
1999 ................................... $1,861
2000 ................................... 1,556
2001 ................................... 1,480
2002 ................................... 684
2003 ................................... 424
Thereafter ............................. 753
------
Total minimum lease payments.......... $6,758
------
------
</TABLE>

8. INCOME TAXES

The income tax provision (benefit) is as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current provision (benefit) ........................ $ 1,091 $ (22) $ (269)
Deferred (benefit) provision ....................... (107) 605 (1,577)
------- ------- -------
Total provision for (benefit from) income tax .. $ 984 $ 583 $(1,846)
------- ------- -------
------- ------- -------
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (CONTINUED)

The difference between the income tax provisions in the consolidated
financial statements and the tax at the statutory federal rate are as follows
(in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Income tax provision at statutory rate ......... $ 1,211 $ 1,056 $(1,258)

Utilization of net operating loss of Pipeline .. (75) -- --
State taxes, net of federal benefit ............ 118 61 (158)
Tax free income ................................ (284) (647) (460)
Other, net ..................................... 14 113 30
------- ------- -------
Total provision .......................... $ 984 $ 583 $(1,846)
------- ------- -------
------- ------- -------
</TABLE>

The principal components of the Company's deferred taxes are as follow (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and other ........................ $ 54 $ 170 $ 109
Cash to accrual adjustments ................... 81 -- --
Product development costs ..................... -- 477 --
------ ------ ------
Gross deferred tax liability .............. 135 647 109
------ ------ ------
Deferred tax assets:
Product development costs ..................... 86 -- --
Allowance for doubtful accounts ............... 101 105 593
Acquisition costs ............................. 53 92 105
Accrued compensation, vacation pay, and other . 35 518 553
Alternative minimum tax credit ................ -- -- 88
Net operating loss carryforward ............... 279 279 762
------ ------ ------
Gross deferred tax assets ................. 554 994 2,101
------ ------ ------
Less valuation allowance ...................... 295 295 295
------ ------ ------
Net deferred tax asset .................... $ 124 $ 52 $1,697
------ ------ ------
------ ------ ------
</TABLE>

The Company has determined that the deferred tax assets are recoverable
based upon future projected earnings.

The valuation allowance relates to the deferred tax assets which carryover
from Pipeline, a wholly-owned subsidiary of the Company. These assets include
net operating loss carryforwards, and research and experimentation credit
carryforwards. These carryforwards may only be used to offset tax liabilities
generated by Pipeline. Because of the uncertainties with respect to Pipeline's
ability to generate sufficient future taxable income to realize these assets,
the Company has provided a valuation allowance against all of Pipeline's net
deferred tax assets.

As of December 31, 1998, IntelliQuest Information Group, Inc. had a net
operating loss of $2.5 million, which expires in 2013.

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTIONS

1993 STOCK PLAN

Under the 1993 Stock Plan (the "1993 Plan"), a total of 344,256 shares of
the Company's Common Stock have been authorized for issuance. Under the 1993
Plan, incentive stock options or nonstatutory stock options may be granted with
exercise prices equaling the fair market value of the stock at the time of
grant, as determined by the Company's Board of Directors, unless the optionee
owns greater than 10% of the voting power of all classes of stock, in which case
the option price will be 110% of the fair market value at the date of grant, as
determined by the Board of Directors. Options granted under the plan generally
have a term of ten years from the date of grant and generally vest over a
five-year period. As of December 31, 1997, the Company does not intend to grant
any further options under the 1993 Plan.

1996 STOCK PLAN

The Company has reserved an aggregate of 700,000 shares of Common Stock
for issuance under its 1996 Stock Plan (the "1996 Plan"). The 1996 Plan
provides for grants of incentive stock options or nonstatutory options to
employees and consultants (including officers and directors) of the Company
and its subsidiaries. With respect to incentive stock options granted under
the 1996 Plan, the exercise price must be at least equal to the fair market
value per share of the Common Stock on the date of grant, and the exercise
price of any incentive stock options granted to a participant who owns more
than 10% of the voting power of all classes of the Company's outstanding
capital stock must be equal to at least 110% of the fair market value of the
Common Stock on the date of grant. The maximum term of incentive stock
options granted under the 1996 Plan may not exceed ten years from the date of
grant (five years in the case of a participant who owns more than 10% of the
voting power of all classes of the Company's outstanding capital stock). In
the event of termination of an optionee's employment or consulting
arrangement, incentive stock options may only be exercised, to the extent
vested as of the date of termination, for a period not to exceed 90 days (12
months in the case of termination due to death or disability) following the
date of termination. Options under the 1996 Plan generally vest and become
exercisable at a rate of 25% on the first anniversary of the commencement of
vesting and 1/48th upon the last day of the calendar month thereafter.
Options outstanding under the 1996 Plan generally have a term of ten years.

1996 DIRECTOR OPTION PLAN

Non-employee directors are entitled to participate in the Company's 1996
Director Option Plan (the "Director Plan"). A total of 100,000 shares of Common
Stock have been reserved for issuance under the Director Plan. The Director
Plan provides that each non-employee director shall be granted, at the
discretion of the Board of Directors, a nonstatutory option to purchase shares
of Common Stock (the "First Option") upon the date such non-employee director
first becomes a director. In addition, each non-employee director who has been
a non-employee director for longer than six months will annually be granted, at
the discretion of the Board of Directors, a nonstatutory option to purchase
shares of Common Stock (a "Subsequent Option"). Each First Option and
Subsequent Option will have a term expiring on the earlier of the tenth
anniversary of the date of grant or twelve months after the date on which the
optionee ends his or her service as a director. The vesting terms to both the
First Option and the Subsequent Option shall be at the discretion of the Board
of Directors. The exercise price for director options are comparable to options
granted under the 1996 Plan described above.

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTIONS (CONTINUED)

PIPELINE COMMUNICATIONS, INC. 1994 INCENTIVE STOCK OPTION PLAN

The Company has reserved an aggregate of 50,000 shares of Common Stock
for issuance under the Pipeline 1994 Incentive Stock Options Plan (the
"Pipeline Plan"). The Pipeline Plan provides for grants of options to the
former employees of Pipeline Communications, Inc. (Note 2). The provisions
of the Pipeline Plan are comparable to the provisions of the 1996 Plan as
described above except that the vesting schedule is determined by the Board
of Directors.

1997 STOCK PLAN

The Company has reserved an aggregate of 375,000 shares of Common Stock
for issuance under its 1997 Supplemental Option Plan (the "1997 Plan"). The
1997 Plan provides for grants of nonstatutory stock options to employees,
directors and consultants of the Company and its subsidiaries. The 1997 Plan
provides that vesting terms shall be at the discretion of the Board of
Directors. The terms and exercise price for options granted under the 1997
Plan are comparable to those granted under the 1996 Plan described above.

SUBSEQUENT OPTION POLICY

In 1997, the Company's Board of Directors adopted a policy that
provides for immediate monthly vesting for option grants to persons who have
a preexisting option agreement with the Company ("Subsequent Options"). The
policy applies to Subsequent Options under all of the Company's plans for
grants dated on or after April 29, 1997.

RE-PRICING OF STOCK OPTIONS

In 1998, the Company's Board of Directors twice approved the 1998
re-pricing of stock options. The grant date of the first re-pricing was
February 4, 1998, where the price was reduced to $11.00. The vesting period
for these re-priced stock options was extended by an additional 12 months.
The second re-pricing grant date was October 16, 1998, where the stock option
price was reduced to $5.00. Unvested stock options on October 16, 1998 will
vest over the next 48 months. These re-pricing policies apply to options
granted under all of the Company's plans for stock grants.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTIONS (CONTINUED)

The Company applies APB No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES", and related Interpretations in accounting for its stock plans,
which are described above. Accordingly, no compensation cost has been
recognized for its stock plans. Had compensation cost for the Company's
stock plans been determined based on the fair market value at the grant dates
for awards under those plans consistent with the method provided by SFAS No.
123, "ACCOUNTING FOR STOCK BASED COMPENSATION", the Company's net income and
net income per share would have been reflected by the following pro forma
amounts for the years ended December 31, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) As reported........ $2,209,000 $2,161,000 $(1,579,000)
Pro forma.......... $1,780,000 $ 624,000 $(2,725,000)
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTIONS (CONTINUED)

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Diluted net income (loss) per share As reported........ $ .30 $ .25 $ (.19)
Pro forma.......... $ .24 $ .07 $ (.33)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1996, 1997 and
1998:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Dividend yield ............ -- -- --
Expected volatility ....... 59.84% 60.60% 67.60%
Risk-free rate of return .. 6.25% 6.35% 4.69%
Expected life ............. 4.67 years 3.54 years 3.97 years
</TABLE>

The following table summarizes activity under all Plans for each of the
three years ended December 31, 1998 (share amounts in thousands):

<TABLE>
<CAPTION>
1996 1997 1998
--------------------- ----------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Shares Price Shares Price Shares
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning of the year... $ 1.02 215 $ 14.29 429 $ 15.62 844
Granted.................................. 20.14 300 15.42 711 7.44 2,089
Exercised ............................... .71 (71) 1.89 (76) 3.23 (66)
Canceled ................................ .51 (15) 17.16 (220) 13.28 (1,694)
-------- -------- --------- -------- -------- --------
Outstanding at the end of the year......... $ 14.29 429 $ 15.62 844 $ 5.13 1,173
-------- -------- --------- -------- -------- --------
-------- -------- --------- -------- -------- --------

Options exercisable at year end ........... $ 2.06 82 $ 14.40 180 $ 5.52 260
-------- -------- --------- -------- -------- --------
-------- -------- --------- -------- -------- --------

Weighted average fair value of options
granted during the year.................. $ 11.12 $ 7.52 $ 2.38
-------- --------- --------
-------- --------- --------
</TABLE>

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTIONS (CONTINUED)

<TABLE>
<CAPTION>
Options Outstanding
-----------------------------------------------------------------------
Number Weighted-Average
Range of Exercise Outstanding at Remaining Contractual Weighted-Average
Prices December 31, 1998 Life Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$.14 12 5.5 years $ .14
$.40 6 4.2 .40
$.68 4 6.4 .68
$1.38 7 6.7 1.38
$5.00-7.00 1,113 9.0 5.02
$8.75-12.00 5 5.4 9.87
$13.89-17.25 26 1.8 14.49
- ------------------------------------------------------------------------------------------------------
$.14-17.25 1,173 8.7 years $ 5.13
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
<CAPTION>
Options Outstanding
-----------------------------------
Number
Range of Exercise Exercisable at Weighted-Average
Prices December 31, 1998 Exercise Price
- -----------------------------------------------------------------
<S> <C> <C>
$.14 12 $ .14
$.40 6 .40
$.68 4 .68
$1.38 5 1.38
$5.00-7.00 205 5.00
$8.75-12.00 3 9.77
$13.89-17.25 25 14.45
- -----------------------------------------------------------------
$.14-17.25 260 $ 5.52
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>

Options canceled represent the unexercised options of former employees,
returned to the option pool in accordance with the terms of the stock option
plan, upon their departure from the Company.

OTHER STOCK OPTION GRANTS

Pipeline had previously issued stock options and warrants to non-employees.
Pipeline's options and warrants outstanding as of December 31, 1995 were
converted into options to purchase 20,641 shares of IntelliQuest common stock
upon the merger of Pipeline.

1996 EMPLOYEE STOCK PURCHASE PLAN

The Company has reserved an aggregate of 100,000 shares of common stock for
issuance under its 1996 Employee Stock Purchase Plan (the "ESPP"). The ESPP
permits eligible employees of the Company to purchase Common Stock through
payroll deductions of up to 15% of their compensation provided that no employee
may purchase more than $25,000 worth of stock in any calendar year. The ESPP
has been implemented as a series of successive six-month offering periods, the
first of which commenced on July 1, 1996. The price of common stock purchased
under the ESPP will be 85% of the lower of the fair market of the common stock
on the first and last day of each offering period. Shares of common stock
issued under the ESPP totaled 2,247, 6,875 and 15,865 for the years ended
December 31, 1996, 1997 and 1998, respectively.

The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for the years ended December
31, 1996, 1997 and 1998:

For the Year Ended December 31,
----------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Dividend yield ................................................. -- -- --
Expected volatility ............................................ 59.84% 60.60% 67.60%
Risk-free rate of return ....................................... 5.52% 5.24% 5.28%
Expected life .................................................. .5 years .5 years .4 years
Weighted-average fair value of purchase
rights granted ................................................. $5.73 $3.98 $3.67
</TABLE>

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. REDEEMABLE CONVERTIBLE PREFERRED STOCK

In May 1993, the Company authorized 1,853,046 shares of redeemable
convertible preferred stock, of which 1,055,718 shares were designated as
Series A Redeemable Convertible Preferred Stock (the "Series A Preferred
Stock") and 797,328 shares were designated as Series B Redeemable Convertible
Preferred Stock (the "Series B Preferred Stock"). Both Series A Preferred
Stock and Series B Preferred Stock (the "Preferred Stock") had par value of
$1.00 and were recorded net of total issuance costs of $100,000.

The holders of Preferred Stock converted their shares of Preferred Stock
into the Company's Common Stock at a conversion ratio of one share of Preferred
Stock for one share of Common Stock in connection with the Company's initial
public offering in March 1996.

11. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

The Company adopted a Stockholder Rights Agreement on October 18, 1998 and
declared a dividend of one preferred share purchase right for each outstanding
share of common stock of the Company outstanding at the close of business on
November 2, 1998. Each right will entitle the registered holder, after the
rights become exercisable and until November 2, 2008, to purchase from the
Company one one-hundred (1/100) of a share of Class A Junior Participating
Preferred Stock at a price of $40.00 per one one-hundred (1/100) of a preferred
share, subject to certain anti-dilution adjustments. The rights are not
exercisable until the distribution date. The rights will expire on November 2,
2008. The distribution date is the earlier of:
- ten (10) days following a public announcement that a person or group
has acquired a beneficial ownership of 20% or more of the common
shares OR
- ten (10) business days following the announcement or commencement of
an intention to make a tender offer or exchange offer the consummation
of which would result in a beneficial ownership by a person or group
of 20% or more of the common shares.

12. EMPLOYEES' SAVINGS PLAN

The Company's 401(k) Savings and Retirement Plan (the "401(k) Plan") is
a defined contribution retirement plan with a cash or deferred arrangement as
described in Section 401(k) of the Code. The 401(k) Plan is intended to be
qualified under Section 401(a) of the Code. All employees of the Company are
eligible to participate in the 401(k) Plan after approximately one year of
employment. The 401(k) Plan provides that each participant make elective
contributions from 1% to 15% of his or her compensation, subject to statutory
limits. Under the terms of the 401(k) Plan, allocation of the matching
contribution is integrated with Social Security, in accordance with
applicable nondiscrimination rules under the Code. The Company matches 50%
of the employee's first 6% of contributions. The match vests over a 5 year
period. The Company made matching contributions in the amount of $10,000, $0
and $162,000 in 1996, 1997 and 1998, respectively.

13. SIGNIFICANT CLIENTS AND CREDIT RISKS

The Company has relied on a limited number of key customers for the
majority of its revenues. In addition, there has been significant
consolidation of companies in the technology industries served by the
Company, a trend which the Company believes will continue. The loss of one or
more of the Company's large customers or a

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SIGNIFICANT CLIENTS AND CREDIT RISKS (CONTINUED)

significant reduction of business from such customers, regardless of the
reason, would have a material adverse effect on the Company.

Revenues from certain significant clients are, as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Client 1..................... --% --% 13%
Client 2..................... 7% 10% 12%
Client 3..................... 18% 17% 9%
Client 4..................... 11% 7% 5%
</TABLE>

For the year ended December 31, 1998 all of the revenue derived from
Client 1 related to IQ2.net. For the year ended December 31, 1997, all
of the revenue derived from Client 3 related to the Research Division. For
the year ended December 31, 1996, all of the revenue derived from Clients 3
and 4 related to the Research Division.

Additionally, at December 31, 1997 and 1998, certain clients had
accounts receivable and unbilled revenue balances with the Company which
represented the following amounts of total net accounts receivable and
unbilled revenues:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Client 1..................... --% 12%
Client 2..................... 15% 6%
Client 3..................... 12% 2%
</TABLE>

The Company sells its products to various companies in technology and
publication industries. The Company performs ongoing credit evaluations of
its customers and maintains reserves for potential credit losses.

14. SEGMENT INFORMATION

In 1998 the Company adopted SFAS 131. The prior year's segment
information has been restated to present the Company's two reportable
segments: Research Division and IQ2.net.

The accounting policies of the segments are the same as those described
in the "Summary of Significant Accounting Policies" (Note 3). Segment data
includes charges allocating all corporate-headquarters costs to each of its
operating segments. The Company evaluates the performance of its segments
and allocates resources to them based on labor, revenues and percentage
utilization in 1996 and 1997 and labor in 1998.

<PAGE>

INTELLIQUEST INFORMATION GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SEGMENT INFORMATION (CONTINUED)

The Company is organized on the basis of products and services provided.
The table below presents information about reported segments for the years
ended December 31, 1996, 1997 and 1998 (in thousands):

<TABLE>
<CAPTION>
Research Division IQ2.net
----------------- -------
1996 1997 1998 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 19,577 $ 23,523 $ 26,363 $ 8,790 $ 12,570 $ 19,336
Depreciation and amortization $ 107 $ 144 $ 222 $ 33 $ 193 $ 408
EBIT $ 2,041 $ 1,399 $ (1,809) $ 512 $ (770) $ (576)
</TABLE>

A reconciliation of total segment revenues to total consolidated
revenues and of total segment EBIT to total consolidated operating income
(loss), for the years ended December 31, 1996, 1997 and 1998 is as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
REVENUES
Total segment revenues $ 28,367 $ 36,093 $ 45,699
Other reconciling items -- 450 --
----------------------------------------
Consolidated revenues $ 28,367 $ 36,543 $ 45,699
----------------------------------------
----------------------------------------

EBIT
Total EBIT for reportable segments $ 2,533 $ 629 $ (2,385)
Reconciling items:
Write down of capitalized
software not attributable to
defined segment (916)
Unsuccessful launch of new
segment (805)
Charges for unsuccessful launch
of national sales force (496)
Other (184) 169 (226)
----------------------------------------
Operating income (loss) 2,335 798 (4,828)
----------------------------------------
Other income, net 858 1,946 1,403
----------------------------------------
Income (loss) before income taxes $ 3,193 $ 2,744 $ (3,425)
----------------------------------------
----------------------------------------
</TABLE>

EBIT is net income before interest and taxes. EBIT is a financial
measure commonly used as an indicator of operating performance and should not
be construed as an alternative to net income as determined in accordance with
generally accepted accounting principles.

The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SEGMENT INFORMATION (CONTINUED)

EBIT for IQ2.net in 1998 includes a one-time write off of capitalized
internally developed software of $580,000.

15. GEOGRAPHIC DATA

Revenue includes export sales to unaffiliated non-U.S. customers and to
unaffiliated U.S. customers commissioning information-gathering services
abroad, generally on behalf of their foreign subsidiaries. The Company
defines "Europe Sales" as revenues attributable to information gathering
services provided in Western Europe and "Other International Sales" as
revenues attributable to all other areas located outside of the United States.

Summarized revenue information by geographic location is as follows (in
thousands):

<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
RESEARCH DIVISION
Europe................ $4,635 $4,594 $4,804
Other international... 1,286 1,315 1,020
------ ------ ------
$5,921 $5,909 $5,824
------ ------ ------
------ ------ ------
IQ2.NET
Europe................ $1,895 $4,353 $1,211
Other international... 68 178 431
------ ------ ------
$1,963 $4,531 $1,642
------ ------ ------
------ ------ ------
</TABLE>

16. STOCK REPURCHASE PROGRAM

In January 1998, the Board of Directors approved the repurchase of
850,000 shares of the Company's common stock. As of February 26, 1999,
720,000 shares have been repurchased for $5.9 million in open market
transactions.

The accompanying notes are an integral part
of these consolidated financial statements.
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Except for information regarding the Company's executive officers, the
information called for by this Item is incorporated in this Form 10-K by
reference to the definitive Proxy Statement for the Company's Annual Meeting
of Stockholders, currently scheduled for May 11, 1999, under the heading
"Proposal One - Election of Directors-Nominees".

For information concerning the executive officers of the Company, see
"Executive Officers of the Registrant" under Part I of this Form 10-K.

None of the Company's directors or officers has any family relationship
with any other director or officer. "Family relationship" for this purpose
means any relationship by blood, marriage or adoption, not more remote than
first cousin.

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation and related matters set
forth in the Company's definitive Proxy Statement for the Company's Annual
meeting of Stockholders, currently scheduled for May 11, 1999, under the
section entitled "Executive Compensation and Other Matters," and is
incorporated herein by reference thereto.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning shares of Common Stock of the Company
beneficially owned by management and others is set forth in the Company's
definitive Proxy Statement for the Company's Annual Meeting of Stockholders,
currently scheduled for May 11, 1999, under the section entitled "Record Date
and Principal Share Ownership" and is incorporated herein by reference
thereto.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated in this report by
reference to the Company's definitive Proxy Statement for the Company's
Annual Meeting of Stockholders, currently scheduled for May 11, 1999, under
the section entitled "Executive Compensation and Other Matters."

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1 and 2. Financial statements and financial statement schedules

INTELLIQUEST INFORMATION GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Accountants ................................. 32
Consolidated Balance Sheets ....................................... 33
Consolidated Statements of Operations ............................. 34
Consolidated Statements of Comprehensive Income (Loss) ............ 35
Consolidated Statements of Common Stockholders' Equity (Deficit) .. 36
Consolidated Statements of Cash Flows ............................. 37
Notes to Consolidated Financial Statements ........................ 39
</TABLE>

3. EXHIBITS

<TABLE>
<S> <C>
3.1 (1) Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 (1) Amended and Restated Bylaws of the Registrant.
4.1 (1) Form of Registrant's Common Stock Certificate.
4.2 (3) October 1998 Stockholder Rights Agreement
10.1 (1) Form of Indemnification Agreement entered into by the Registrant
with each of its directors and executive officers.
10.2 (1) Amended 1993 IQI Corp. Stock Option Plan and related agreements.
10.3 (2) 1996 Stock Plan and related agreements.
10.4 (1) 1996 Employee Stock Purchase Plan and related agreements.
10.5 (2) 1996 Director Option Plan and related agreement.
10.6 (1) Stock Purchase Agreement among the Registrant and certain
securityholders of the Company, dated as of May 28, 1993.
10.7 (1) Loan and Security Agreement, between the Company and Silicon
Valley Bank, dated September 24, 1993, as amended and with
exhibits.
10.8 (1) Lease Agreement between the Company and JMB Group Trust III,
dated September 15, 1992, as amended.
10.9 Registration Rights Agreement, dated February 25, 1997, by and
among the Company and the former shareholders of Pipeline
Communications, Inc. and Zona Research, Inc.
10.10 1997 Supplemental Option Plan and related agreement.
11.1 Statement of computation of earnings per share.
21.1 Subsidiaries of the Registrant.
23.2 Consent of PricewaterhouseCoopers, LLP, independent accountants.
24.1 Power of Attorney (see page 57).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
</TABLE>
<PAGE>

------------------------------
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-00844), as amended, declared effective
March 21, 1996.
(2) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (File No. 333-12547), as amended, declared effective
October 17, 1997.
(3) Incorporated by reference to the Registrant's Form 10Q for the quarter
ended September 30, 1998

(b) Reports on Form 8-K for the quarter ended December 31, 1998.

The Company filed a current report on Form 8-K on October 9, 1998
announcing the adoption of the Stockholder Rights Agreement.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

INTELLIQUEST INFORMATION GROUP, INC.

Dated: By: /s/ Francis S. Webster III
March 31, 1999 ----------------------------
(Francis S. Webster III)
Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Peter Zandan,
Brian Sharples, and Francis S. Webster, III, his attorneys-in-fact, each with
the power of substitution, for him in any and all capacities, to sign any and
all amendments to this Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connections therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>

/s/ Peter Zandan
- ----------------
(Peter Zandan) Chairman March 31, 1999

/s/ Brian Sharples
- ------------------
(Brian Sharples) Chief Executive Officer, Director March 31, 1999

/s/ Francis S. Webster III
- --------------------------
(Francis S. Webster III) Chief Financial Officer March 31, 1999

/s/ William Wood
- ----------------
(William Wood) Director March 31, 1999

/s/ Lee Walker
- --------------
(Lee Walker) Director March 31, 1999

</TABLE>

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-04616, 333-09085 and 333-35047) of
IntelliQuest Information Group, Inc. of our report dated February 26, 1999
appearing on page 32 of this Form 10-K.

PRICEWATERHOUSECOOPERS LLP
Austin, Texas
March 30, 1999

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1998
FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 APR-01-1998 JUL-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998
<CASH> 366 1,360 1,936
<SECURITIES> 38,698 34,180 33,997
<RECEIVABLES> 7,054 11,291 11,322
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 54,321 55,845 54,600
<PP&E> 2,781 2,654 2,577
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 66,536 67,426 66,081
<CURRENT-LIABILITIES> 8,129 10,753 9,522
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 1 1 1
<OTHER-SE> 58,226 56,478 56,446
<TOTAL-LIABILITY-AND-EQUITY> 66,536 67,426 66,081
<SALES> 9,959 9,987 13,844
<TOTAL-REVENUES> 9,959 9,987 13,844
<CGS> 5,798 5,113 7,688
<TOTAL-COSTS> 5,798 5,113 7,688
<OTHER-EXPENSES> 8,832 5,914 5,518
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (4,263) (680) 956
<INCOME-TAX> (1,894) (413) 255
<INCOME-CONTINUING> (2,369) (267) 701
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (2,369) (267) 701
<EPS-PRIMARY> (.28) (.03) .08
<EPS-DILUTED> (.28) (.03) .08

</TABLE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,611
<SECURITIES> 28,010
<RECEIVABLES> 10,978
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 50,620
<PP&E> 2,850
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,587
<CURRENT-LIABILITIES> 8,967
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 53,540
<TOTAL-LIABILITY-AND-EQUITY> 62,587
<SALES> 45,699
<TOTAL-REVENUES> 45,699
<CGS> 24,604
<TOTAL-COSTS> 24,604
<OTHER-EXPENSES> 25,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> (3,425)
<INCOME-TAX> (1,846)
<INCOME-CONTINUING> (1,579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,579)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)

</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 1,544 2,777 2,697
<SECURITIES> 47,941 47,393 48,161
<RECEIVABLES> 7,949 6,737 7,714
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 60,998 61,561 62,563
<PP&E> 2,853 3,479 4,047
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 64,138 65,335 67,269
<CURRENT-LIABILITIES> 6,428 6,736 7,066
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 1 1 1
<OTHER-SE> 57,673 58,585 60,097
<TOTAL-LIABILITY-AND-EQUITY> 64,138 65,335 67,269
<SALES> 7,484 7,517 12,527
<TOTAL-REVENUES> 7,484 7,517 12,527
<CGS> 3,957 4,050 7,211
<TOTAL-COSTS> 3,957 4,050 7,211
<OTHER-EXPENSES> 3,339 2,880 3,943
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 651 1,034 1,867
<INCOME-TAX> 68 220 485
<INCOME-CONTINUING> 583 814 1,382
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 583 814 1,382
<EPS-PRIMARY> .07 .10 .16
<EPS-DILUTED> .07 .09 .16

</TABLE>